UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 40-F
(Check One)
¨
Registration statement pursuant to Section 12 of the Securities Exchange Act of 1934
or
x Annual report pursuant
to Section 13(a) or 15(d) of the Securities Exchange Act of 1934
For the fiscal year ended December 31, 2014
Commission file number 1-35563
PEMBINA PIPELINE CORPORATION
(Exact name of registrant as specified in its
charter)
Alberta, Canada
(Province or other jurisdiction of
incorporation or organization) |
4612
(Primary Standard Industrial
Classification Code Number (if
applicable)) |
None
(I.R.S. Employer
Identification Number (if
Applicable)) |
Suite 4000, 585 – 8th Avenue
S.W., Calgary, Alberta, Canada T2P 1G1
(403) 231-7500
(Address and Telephone Number of Registrant’s Principal Executive Offices)
DL Services Inc., Columbia Center, 701 Fifth
Avenue, Suite 6100, Seattle, Washington 98104-7043
(206) 903-8800
(Name, Address (Including
Zip Code) and Telephone Number
(Including Area Code) of Agent For Service in the United States)
Securities registered or to be registered pursuant
to Section 12(b) of the Act.
Title of each class
Common Shares |
Name
of each exchange on which registered
New York Stock Exchange |
Securities registered or to be registered pursuant
to Section 12(g) of the Act. None
Securities for which there is a reporting obligation
pursuant to Section 15(d) of the Act. None
For annual reports, indicate by check mark the
information filed with this Form:
x
Annual Information Form |
x Audited Annual Financial Statements |
Indicate the number of outstanding shares of each of the issuer’s
classes of capital or common stock as of the close of the period covered by the annual report: 337,923,880
Indicate by check mark whether the registrant: (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 (the “Exchange Act”) during
the preceding 12 months (or for such shorter period that the registrant was required to file such reports); and (2) has been subject
to such filing requirements for the past 90 days.
Yes x No
¨
Indicate by check mark whether the registrant has submitted electronically
and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule
405 of Regulation S-T (s.232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant
was required to submit and post such files).
Yes ¨ No ¨
FORM 40-F
Principal Documents
The following documents, filed as Exhibits 99.1, 99.2 and 99.3 to
this Annual Report on Form 40-F of Pembina Pipeline Corporation (“Pembina”), are hereby incorporated by reference into
this Annual Report on Form 40-F:
| (a) | Annual Information Form for the fiscal year ended December 31, 2014; |
| (b) | Management’s Discussion and Analysis for the fiscal year ended December 31, 2014; and |
| (c) | Audited Consolidated Financial Statements for the fiscal year ended December 31, 2014. Pembina’s Audited Consolidated
Financial Statements included in this Annual Report on Form 40-F have been prepared in accordance with International Financial
Reporting Standards, as issued by the International Accounting Standards Board. Therefore, they are not comparable in all respects
to financial statements of United States companies that are prepared in accordance with United States generally accepted accounting
principles. |
ADDITIONAL DISCLOSURE
Certifications and Disclosure Regarding Controls and Procedures.
| (a) | Certifications. See Exhibits 99.4, 99.5, 99.6 and 99.7 to this Annual Report on Form 40-F. |
| (b) | Disclosure Controls and Procedures. As of the end of Pembina’s fiscal year ended December 31, 2014, an evaluation
of the effectiveness of Pembina’s “disclosure controls and procedures” (as such term is defined in Rules 13a-15(e)
and 15d-15(e) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) was carried out by Pembina’s
management, with the participation of its principal executive officer and principal financial officer. Based upon that evaluation,
Pembina’s principal executive officer and principal financial officer have concluded that as of the end of that fiscal year,
Pembina’s disclosure controls and procedures are effective to ensure that information required to be disclosed by Pembina
in reports that it files or submits under the Exchange Act is (i) recorded, processed, summarized and reported within the time
periods specified in Securities and Exchange Commission (the “Commission”) rules and forms and (ii) accumulated and
communicated to Pembina’s management, including its principal executive officer and principal financial officers, to allow
timely decisions regarding required disclosure. |
It should be noted that while Pembina’s principal
executive officer and principal financial officer believe that Pembina’s disclosure controls and procedures provide a reasonable
level of assurance that they are effective, they do not expect that Pembina’s disclosure controls and procedures or internal
control over financial reporting will prevent all errors and fraud. A control system, no matter how well conceived or operated,
can provide only reasonable, not absolute, assurance that the objectives of the control system are met.
| (c) | Management’s Annual Report on Internal Control Over Financial Reporting. The required disclosure is included in
the “Management’s Report” that accompanies Pembina’s Consolidated Financial Statements for the fiscal year
ended December 31, 2014, filed as Exhibit 99.3 to this Annual Report on Form 40-F. |
| (d) | Attestation Report of the Registered Public Accounting Firm. The required disclosure is included in the “Report
of Independent Registered Public Accounting Firm” that accompanies Pembina’s Consolidated Financial Statements for
the fiscal year ended December 31, 2014, filed as Exhibit 99.3 to this Annual Report on Form 40-F. |
| (e) | Changes in Internal Control Over Financial Reporting. During the fiscal year ended December 31, 2014, no changes were
made in Pembina's internal control over financial reporting that have materially affected or are reasonably likely to materially
affect Pembina's internal control over financial reporting |
Notices Pursuant to Regulation
BTR.
None.
Audit Committee Financial Expert.
Pembina’s board of directors has determined that David M.B.
LeGresley, a member of Pembina’s audit committee, qualifies as an “audit committee financial expert” (as such
term is defined in Form 40-F) and is “independent” as that term is defined in the rules of the New York Stock Exchange.
Code of Ethics.
Pembina has adopted a Code of Ethics that meets the definition of
a “code of ethics” set forth in Form 40-F, and that applies to Pembina’s principal executive officer, principal
financial officer, principal accounting officer or controller, and persons performing similar functions.
The Code of Ethics is available for viewing on Pembina’s
website at www.pembina.com, and is available in print to any shareholder who requests it. Requests for copies of the Code
of Ethics should be made by contacting: Investor Relations by phone at (855) 880-7404 or by e-mail at investor-relations@pembina.com.
Since the date on which Pembina became subject to the reporting
requirements of Section 13(a) or 15(d) of the Exchange Act, there have not been any amendments to, or waivers, including implicit
waivers, granted from, any provision of the Code of Ethics.
If any amendment to the Code of Ethics is made, or if any waiver
from the provisions thereof is granted, Pembina may elect to disclose the information about such amendment or waiver required by
Form 40-F to be disclosed, by posting such disclosure on Pembina’s website, which may be accessed at www.pembina.com.
Principal Accountant Fees and
Services.
The required disclosure is included under the heading “Audit
Committee Information−External Auditor Service Fees” in Pembina’s Annual Information Form for the fiscal year
ended December 31, 2014, filed as Exhibit 99.1 to this Annual Report on Form 40-F.
Pre-Approval Policies and Procedures.
| (a) | Pembina’s full audit committee pre-approves all audit and non-services provided to Pembina by its external auditor, KPMG
LLP. Also see “Audit Committee Information−Pre-Approval Policies and Procedures for Audit and Non-Audit Services”
in Pembina’s Annual Information Form for the fiscal year ended December 31, 2014, filed as Exhibit 99.1 to this Annual Report
on Form 40-F. |
| (b) | Of the fees reported in Exhibit 99.1 to this Annual Report on Form 40-F under the heading “Audit Committee Information−External
Auditor Service Fees”, none of the fees billed by KPMG LLP were approved by Pembina’s audit committee pursuant to the
de minimis exception provided by Section (c)(7)(i)(C) of Rule 2-01 of Regulation S-X. |
Off-Balance Sheet Arrangements.
Pembina does not have any off-balance sheet arrangements that have
or are reasonably likely to have a current or future effect on its financial condition, changes in financial condition, revenues
or expenses, results of operations, liquidity, capital expenditures or capital resources that is material to investors.
Tabular Disclosure of Contractual Obligations.
The required disclosure is included under the heading “Contractual
Obligations at December 31, 2014” in Pembina’s Management’s Discussion and Analysis for the fiscal year ended
December 31, 2014, filed as Exhibit 99.2 to this Annual Report on Form 40-F.
Identification of the Audit Committee.
Pembina has a separately-designated standing audit committee established
in accordance with Section 3(a)(58)(A) of the Exchange Act. The members of the audit committee are: David
M.B. LeGresley, Grant D. Billing, Anne-Marie Ainsworth and Lorne B. Gordon.
Mine Safety Disclosure.
Not applicable.
New York Stock Exchange Disclosure.
Presiding Director at Meetings of Non-Management Directors
Pembina schedules regular executive sessions in which Pembina’s
“non-management directors” (as that term is defined in the rules of the New York Stock Exchange) meet without management
participation. Mr. Randall J. Findlay serves as the presiding director (the “Presiding Director”) at such sessions.
Each of Pembina’s non-management directors is “independent” within the meaning of the rules of the New York Stock
Exchange, other than Mr. Robert Michaleski, who was Pembina's Chief Executive Officer until December 31, 2013.
Pembina also holds executive sessions at least once per year in
which Pembina’s independent directors meet without participation from management or non-independent directors.
Communication with Non-Management Directors
Shareholders may send communications to Pembina’s non-management
directors by writing to Leslie A. O'Donoghue, Chair of the governance committee of the board of directors, c/o Investor Relations,
Pembina Pipeline Corporation, 4000, 585 – 8th Avenue SW, Calgary, Alberta T2P 1G1. Communications will be referred
to the Presiding Director for appropriate action. The status of all outstanding concerns addressed to the Presiding Director will
be reported to the board of directors as appropriate.
Corporate Governance Guidelines
In accordance with Section 303A.09 of the NYSE Listed Company
Manual, Pembina has adopted a set of corporate governance guidelines with respect to certain specified matters. Such guidelines
are available for viewing on Pembina’s website at www.pembina.com.
Board Committee Mandates
The Charters of Pembina’s audit committee, human resources
and compensation committee, health, safety and environment committee, governance committee and major capital projects committee
are each available for viewing on Pembina’s website at www.pembina.com.
NYSE Statement of Governance Differences
As a Canadian corporation listed on the NYSE, Pembina is not required
to comply with most of the NYSE corporate governance standards, so long as it complies with Canadian corporate governance practices.
In order to claim such an exemption, however, Pembina must disclose the significant difference between its corporate governance
practices and those required to be followed by U.S. domestic companies under the NYSE’s corporate governance standards.
Pembina has included a description of such significant differences in corporate governance practices on its website, which may
be accessed at www.pembina.com.
UNDERTAKING AND CONSENT TO SERVICE OF PROCESS
Pembina undertakes to make available, in person
or by telephone, representatives to respond to inquiries made by the Commission staff, and to furnish promptly, when requested
to do so by the Commission staff, information relating to: the securities registered pursuant to Form 40-F; the securities in relation
to which the obligation to file an annual report on Form 40-F arises; or transactions in said securities.
| B. | Consent to Service of Process. |
Pembina has previously filed a Form F-X in connection
with the class of securities in relation to which the obligation to file this report arises.
Any change to the name or address of the agent
for service of process of Pembina shall be communicated promptly to the Commission by an amendment to the Form F-X referencing
the file number of Pembina.
SIGNATURES
Pursuant to the requirements of the Exchange
Act, the registrant certifies that it meets all of the requirements for filing on Form 40-F and has duly caused this annual report
to be signed on its behalf by the undersigned, thereunto duly authorized, on February 26, 2015.
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Pembina Pipeline Corporation |
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By: |
/s/ M.H. Dilger |
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Name: |
M.H. Dilger |
|
Title: |
President & Chief Executive Officer |
EXHIBIT INDEX
Exhibit |
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Description |
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99.1 |
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Annual Information Form for the fiscal year ended December 31, 2014 |
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99.2 |
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Management’s Discussion and Analysis for the fiscal year ended December 31, 2014 |
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99.3 |
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Audited Consolidated Financial Statements for the fiscal year ended December 31, 2014, prepared in accordance with International Financial Reporting Standards, as issued by the International Accounting Standards Board |
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99.4 |
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Certification of Chief Executive Officer pursuant to Rule 13a-14 or 15d-14 of the Securities Exchange Act of 1934 |
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99.5 |
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Certification of Chief Financial Officer pursuant to Rule 13a-14 or 15d-14 of the Securities Exchange Act of 1934 |
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99.6 |
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Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350 |
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99.7 |
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Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350 |
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99.8 |
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Consent of KPMG LLP |
Exhibit 99.1
PEMBINA PIPELINE CORPORATION
ANNUAL INFORMATION FORM
For the Year Ended December 31, 2014
February 26, 2015
Table
of Contents
|
Page |
|
|
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|
GLOSSARY OF TERMS |
- 1 - |
|
|
ABBREVIATIONS AND CONVERSIONS |
- 7 - |
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|
NON–GAAP AND ADDITIONAL GAAP MEASURES |
- 8 - |
|
|
FORWARD–LOOKING STATEMENTS AND INFORMATION |
- 9 - |
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|
CORPORATE STRUCTURE |
- 11 - |
|
|
Name, Address and Formation |
- 11 - |
Provident Acquisition |
- 12 - |
Pembina's Subsidiaries |
- 13 - |
Amended Articles |
- 13 - |
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|
GENERAL DEVELOPMENTS OF PEMBINA |
- 14 - |
|
|
Developments in 2012 |
- 14 - |
Developments in 2013 |
- 15 - |
Developments in 2014 |
- 17 - |
|
|
2015 Year to Date Developments |
- 20 - |
|
|
DESCRIPTION OF PEMBINA'S BUSINESS AND OPERATIONS |
- 20 - |
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|
Pembina's Business Objective and Strategy |
- 20 - |
Overview of Pembina's Business |
- 20 - |
Operations Overview |
- 21 - |
Conventional Pipelines Business |
- 23 - |
Oil Sands & Heavy Oil Business |
- 26 - |
Gas Services Business |
- 27 - |
Midstream Business |
- 28 - |
|
|
OTHER INFORMATION RELATING TO PEMBINA'S BUSINESS |
- 30 - |
|
|
Information and Communication Systems |
- 30 - |
Integrity Management |
- 31 - |
Environmental Matters |
- 32 - |
Environmental Incidents |
- 32 - |
Provisions |
- 33 - |
Derivative Financial Instruments |
- 33 - |
Pipeline Rights-of-Way and Land Tenure |
- 33 - |
Indemnification and Insurance |
- 34 - |
Employees |
- 34 - |
Corporate Social Responsibility |
- 34 - |
Corporate Governance |
- 36 - |
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|
CANADIAN OIL AND GAS INDUSTRY |
- 37 - |
|
|
General |
- 37 - |
Canadian Crude and Heavy Oil Overview |
- 37 - |
NGL Overview |
- 39 - |
Midstream Services for Crude Oil, SCO & NGL |
- 40 - |
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DESCRIPTION OF THE CAPITAL STRUCTURE OF PEMBINA |
- 41 - |
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Common Shares |
- 41 - |
Class A Preferred Shares |
- 41 - |
Table
of Contents
(continued)
|
Page |
|
|
Internal Preferred Shares |
- 44 - |
Premium Dividend™ and Dividend Reinvestment Plan |
- 45 - |
Convertible Debentures |
- 45 - |
Credit Facilities |
- 46 - |
Medium Term Notes |
- 46 - |
Other Debt |
- 49 - |
Credit Ratings |
- 49 - |
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DIVIDENDS AND DISTRIBUTIONS |
- 50 - |
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Cash Dividends |
- 50 - |
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MARKET FOR SECURITIES |
- 52 - |
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DIRECTORS AND OFFICERS |
- 56 - |
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Directors of Pembina |
- 56 - |
Executive Officers of Pembina |
- 58 - |
Conflict of Interest |
- 60 - |
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AUDIT COMMITTEE INFORMATION |
- 60 - |
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The Audit Committee's Charter |
- 60 - |
Composition of the Audit Committee and Relevant Education and Experience |
- 60 - |
Pre-Approval Policies and Procedures for Audit and Non-Audit Services |
- 61 - |
External Auditor Service Fees |
- 62 - |
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RISK FACTORS |
- 62 - |
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Risks Inherent in Pembina's Business |
- 63 - |
Risk Factors Relating to the Securities of Pembina |
- 69 - |
General Risk Factors |
- 70 - |
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INTEREST OF MANAGEMENT AND OTHERS IN MATERIAL TRANSACTIONS |
- 74 - |
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MATERIAL CONTRACTS |
- 74 - |
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LEGAL PROCEEDINGS |
- 74 - |
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REGISTRAR AND TRANSFER AGENT |
- 74 - |
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INTERESTS OF EXPERTS |
- 74 - |
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ADDITIONAL INFORMATION |
- 74 - |
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APPENDIX "A" – AUDIT COMMITTEE CHARTER |
A-1 |
GLOSSARY OF TERMS
Terms used in this Annual Information Form
and not otherwise defined have the meanings set forth below:
"2010 Base Shelf Prospectus"
means the final short form base shelf prospectus filed with the securities commissions or similar regulatory authorities in each
of the provinces of Canada on November 12, 2010 which allowed Pembina to offer and issue, from time to time: (i) Common Shares;
(ii) any bonds, debentures, notes or other evidences of indebtedness of any kind, nature or description of Pembina; (iii) warrants;
and (iv) subscription receipts of Pembina of up to $1,000,000,000 aggregate initial offering price (or the equivalent thereof in
one or more foreign currencies or composite currencies, including United States dollars) during the 25 month period that the 2010
Base Shelf Prospectus was valid;
"2013 Base Shelf Prospectus"
means the final short form base shelf prospectus filed with the securities commissions or similar regulatory authorities in each
of the provinces of Canada on February 22, 2013 allowing Pembina to offer and issue, from time to time: (i) Common Shares; (ii)
preferred shares; (iii) any bonds, debentures, notes or other evidences of indebtedness of any kind, nature or description of Pembina
("Debt Securities"); (iv) warrants to purchase Common Shares and warrants to purchase Debt Securities; and (v)
subscription receipts of Pembina (together with the foregoing, collectively, the "Securities") of up to $3,000,000,000
aggregate initial offering price of Securities (or the equivalent thereof in one or more foreign currencies or composite currencies,
including United States dollars) during the 25 month period that the 2013 Base Shelf Prospectus is valid, which Securities may
be offered separately or together, in amounts, at prices and on terms to be determined based on market conditions at the time of
the sale and set forth in one or more shelf prospectus supplements;
"ABCA" means the Business
Corporations Act (Alberta), R.S.A. 2000, c. B-9, as amended from time to time, including the regulations promulgated thereunder;
"AER" means the Alberta Energy
Regulator;
"Alberta Pipelines" means
those pipelines servicing the conventional oil, condensate and NGL production in Alberta including the Peace Pipeline, the Northern
Pipeline, the Drayton Valley Pipeline, the Swan Hills Pipeline, the Brazeau/Caroline Pipeline and the Bonnie Glen Pipeline;
"B.C. Pipelines" means, collectively,
the NEBC Pipeline and the Western Pipeline;
"BCUC" means the British Columbia
Utilities Commission;
"Board" or "Board
of Directors" means the board of directors of Pembina from time to time;
"Bonnie Glen Pipeline" means
the pipeline system and related facilities, owned 50 percent by Pembina, delivering crude oil and condensate from central Alberta
to Edmonton, Alberta;
"Brazeau/Caroline Pipeline"
means the pipeline system and related facilities delivering NGL from natural gas processing plants southwest of Edmonton, Alberta
and from Caroline, Alberta to the Bonnie Glen Pipeline or to Fort Saskatchewan, Alberta;
"Canadian Diluent Hub" or
"CDH" has the meaning ascribed thereto under "General Developments of Pembina – Developments in
2014";
"Cenovus" means Cenovus Energy
Inc.;
"Cheecham Lateral" means the
lateral pipeline and related facilities delivering SCO from an existing pump station on the Syncrude Pipeline to a terminalling
facility located near Cheecham, Alberta;
"Class A Preferred Shares"
means class A preferred shares of Pembina, issuable in series, and where the context requires includes the Series 1 Class A Preferred
Shares, the Series 2 Class A Preferred Shares, the Series 3 Class A Preferred Shares, the Series 4 Class A Preferred Shares, the
Series 5 Class A Preferred Shares, the Series 6 Class A Preferred Shares, the Series 7 Class A Preferred Shares and the Series
8 Class A Preferred Shares;
"CNRL" means Canadian Natural
Resources Limited;
"Common Shares" means the
common shares in the capital of Pembina;
"Company" or "Pembina"
means Pembina Pipeline Corporation, an ABCA corporation and, unless the context otherwise requires, includes its consolidated subsidiaries;
"condensate" means a mixture
consisting primarily of pentanes and heavier hydrocarbon liquids;
"Convertible Debentures" means,
collectively, the Series C Convertible Debentures, the Series E Convertible Debentures and the Series F Convertible Debentures;
"Cornerstone Pipeline" has
the meaning ascribed thereto under "General Developments of Pembina – Developments in 2013";
"Credit Facilities" has the
meaning ascribed thereto under "Description of the Capital Structure of Pembina – Credit Facilities";
"Cutbank Complex" means PGS
Limited Partnership's interest in the interconnected sweet gas processing facilities comprising the Cutbank Gas Plant, the Musreau
Gas Plant, the Musreau Deep Cut Facility, Musreau II, and the Kakwa Gas Plant and the associated pipelines and compressors and
the agreements related thereto;
"Cutbank Gas Plant" means
the facility owned 100 percent by PGS Limited Partnership located at 07-16-062-08 W6M;
"Declaration of Trust" means
the declaration of trust dated September 4, 1997, as amended and restated April 30, 1999 and as further amended and restated October
1, 2010, pursuant to which the Fund was created;
"Dow Canada" means Dow Chemical
Canada Inc.;
"Drayton Valley Pipeline"
means the pipeline system and related facilities delivering crude oil and condensate production to Edmonton, Alberta from the area
southwest of Edmonton, Alberta;
"DRIP" means Pembina's Premium
DividendTM and Dividend Reinvestment Plan and all associated agreements;
"ESA" has the meaning ascribed
thereto under "General Developments of Pembina – Developments in 2013";
"Form 40-F" means Pembina's
annual report on Form 40-F for the fiscal year ended December 31, 2014 filed with the SEC;
"Fund" has the meaning ascribed
thereto under "Corporate Structure – Name, Address and Formation";
"Heartland Hub" has the meaning
ascribed thereto under "General Developments of Pembina – Developments in 2013";
"Horizon Pipeline" means the
pipeline system and related facilities designed to deliver SCO from the Horizon Project into the Edmonton, Alberta area. See "Description
of Pembina's Business and Operations – Oil Sands & Heavy Oil Business";
"Horizon Project" means CNRL's
Horizon Oil Sands Project located approximately 70 kilometres north of Fort McMurray, Alberta;
"HVP" means high vapour pressure;
"Internal Preferred Shares"
has the meaning ascribed thereto under "Description of the Capital Structure of Pembina – Internal Preferred Shares";
"Kakwa Gas Plant" means the
facility jointly owned by Jupiter Energy Limited and PGS Limited Partnership, each as to an undivided 50 percent interest, located
at 01-35-060-05 W6M;
"MD&A" means Pembina's
management's discussion and analysis for the year ended December 31, 2014, an electronic copy of which is available on Pembina's
profile on the SEDAR website at www.sedar.com, and in Pembina's annual report on Form 40-F filed on the EDGAR website at www.sec.gov,
or at www.pembina.com;
"Medium Term Note Indenture"
means the indenture dated March 29, 2011 between Pembina, Pouce Coupé Pipe Line Ltd., Plateau Pipe Line Ltd., Alberta Oil
Sands Pipeline Ltd., Pembina Pipeline (an Alberta partnership), Pembina North Limited Partnership, Pembina West Limited Partnership,
Pembina Oil Sands Pipeline L.P., Pembina Marketing Ltd., Pembina Midstream Limited Partnership, Pembina Gas Services Ltd., Pembina
Gas Services Limited Partnership and Computershare Trust Company of Canada, as supplemented by the first supplemental note indenture
dated April 2, 2012 between Pembina, Pembina NGL Corporation, 1598313 Alberta Ltd., Provident Infrastructure and Logistics LP,
Provident Midstream Holdings GP ULC, Provident Midstream Inc., Provident GP Inc., Provident Facilities (NGL) Ltd., Provident Facilities
(NGL) L.P., 1195714 Alberta Ltd., 1444767 Alberta Ltd., Provident Energy Pipeline Inc., Empress NGL Partnership, Kinetic Resources
(LPG), Pro Holding Company, Provident Midstream (USA) Inc., Pro US LLC, Pro Midstream Company, Kinetic Resources (U.S.A.), Pro
GP Corp., Pro LP Corp., Terraquest, Inc. and Computershare Trust Company of Canada, and as further supplemented by the second supplemental
note indenture dated October 24, 2014 among Pembina, Pembina Prairie Facilities Ltd., Pembina Prairie Facilities Holdco Ltd. and
Computershare Trust Company of Canada, providing for the issuance of the Medium Term Notes;
"Medium Term Notes" means,
collectively, the Medium Term Notes, Series 1, the Medium Term Notes, Series 2, the Medium Term Notes, Series 3, the Medium Term
Notes, Series 4, and the Medium Term Notes, Series 5;
"Medium Term Notes, Series 1"
means the $250 million aggregate principal amount of medium term notes of Pembina issued March 29, 2011 that mature on March 29,
2021 and which bear interest at a fixed rate of 4.89 percent per annum. See "Description of the Capital Structure of Pembina
– Medium Term Notes";
"Medium Term Notes, Series 2"
means the $450 million aggregate principal amount of medium term notes of Pembina issued October 22, 2012 that mature on October
24, 2022 and which bear interest at a fixed rate of 3.77 percent per annum. See "Description of the Capital Structure of
Pembina – Medium Term Notes";
"Medium Term Notes, Series 3"
means the $200 million and $150 million aggregate principal amount of medium term notes of Pembina issued April 30, 2013 and February
2, 2015, respectively, that mature on April 30, 2043 and which bear interest at a fixed rate of 4.75 percent per annum. See "Description
of the Capital Structure of Pembina – Medium Term Notes";
"Medium Term Notes, Series 4"
means the $600 million aggregate principal amount of medium term notes of Pembina issued April 4, 2014 that mature on March 25,
2044 and which bear interest at a fixed rate of 4.81 percent per annum. See "Description of the Capital Structure of Pembina
– Medium Term Notes";
"Medium Term Notes, Series 5"
means the $450 million aggregate principal amount of medium term notes of Pembina issued February 2, 2015 that mature on February
3, 2025 and which bear interest at a fixed rate of 3.54 percent per annum. See "Description of the Capital Structure of
Pembina – Medium Term Notes";
"Mitsue Pipeline" means the
pipeline system and related facilities delivering condensate from Whitecourt, Alberta to Utikuma, Alberta for use as diluent for
heavy oil;
"Musreau II" has the meaning
ascribed thereto under "General Developments of Pembina – Developments in 2013";
"Musreau III" has the meaning
ascribed thereto under "General Developments of Pembina – Developments in 2014";
"Musreau Deep Cut Facility"
has the meaning ascribed thereto under "General Developments of Pembina – Developments in 2012";
"Musreau Gas Plant" means
the Musreau A, Musreau C and Musreau D trains, owned 100 percent by PGS Limited Partnership, and the Musreau B train, jointly owned
by ConocoPhillips Canada (BRC) Partnership and PGS Limited Partnership, each as to an undivided 50 percent interest, located at
04-25-062-06 W6M;
"NEB" means the National Energy
Board;
"NEBC Expansion" has the meaning
ascribed thereto under "General Developments of Pembina – Developments in 2014";
"NEBC Pipeline" means the
pipeline system and related facilities delivering crude oil and condensate from northeastern British Columbia and northwestern
Alberta to Taylor, British Columbia;
"NGL" means natural gas liquids,
including ethane, propane, butane and condensate;
"Nipisi Pipeline" means the
pipeline system and related facilities delivering blended heavy oil from Utikuma, Alberta to Edmonton, Alberta;
"Northern Pipeline" means
the pipeline system and related facilities delivering NGL from Taylor, British Columbia to Fort Saskatchewan, Alberta;
"Northwest Pipeline" means
the pipeline system and related facilities delivering crude oil from northeastern British Columbia to Boundary Lake, Alberta;
"NOVA Chemicals" means NOVA
Chemicals Corporation;
"NYSE" means the New York
Stock Exchange;
"Option Plan" means the stock
option plan of Pembina approved by the Shareholders on May 26, 2011, as amended effective March 12, 2014;
"Peace Pipeline" means the
pipeline system and related facilities delivering light crude oil, condensate, propane mix (C3+) and ethane mix (C2+)
from northeastern British Columbia and northwestern Alberta to Edmonton, Alberta and to Fort Saskatchewan, Alberta;
"Pembina Nexus Terminal" or
"PNT" means Pembina's terminalling and storage facilities located in the Edmonton, Alberta area and forming an
integral part of the terminal connecting key infrastructure in the Edmonton-Fort Saskatchewan-Namao, Alberta area;
"Phase II Crude and Condensate Expansion"
has the meaning ascribed thereto under "General Developments of Pembina – Developments in 2012";
"Phase II NGL Expansion" has
the meaning ascribed thereto under "General Developments of Pembina – Developments in 2012";
"Phase III Expansion" has
the meaning ascribed thereto under "General Developments of Pembina – Developments in 2013";
"PGS Limited Partnership"
means Pembina Gas Services Limited Partnership, a limited partnership formed under the laws of the Province of Alberta that is
a wholly–owned subsidiary of Pembina;
"Pouce Coupé Pipeline"
means the pipeline system and related facilities delivering sweet crude oil and high vapour pressure hydrocarbon products from
Dawson Creek, British Columbia to Pouce Coupé, Alberta
"Provident" means Provident
Energy Ltd.;
"Provident Acquisition" has
the meaning ascribed thereto under "Corporate Structure – Provident Acquisition";
"Provident Arrangement Agreement"
has the meaning ascribed thereto under "Corporate Structure – Provident Acquisition";
"Provident Shares" means the
common shares of Provident;
"Redwater Plant" means Pembina's
73 mbpd NGL fractionator and 7.8 mmbbls of finished product cavern storage at Redwater, Alberta;
"Resthaven Expansion" has
the meaning ascribed thereto under "General Developments of Pembina – Developments in 2014";
"Resthaven Facility" means
Pembina's combined shallow cut and deep cut NGL extraction facility with 200 MMcf/d (134 MMcf/d net to Pembina) of extraction capacity;
"RFS II" has the meaning ascribed
thereto under "General Developments of Pembina – Developments in 2013";
"RFS III" has the meaning
ascribed thereto under "General Developments of Pembina – Developments in 2013";
"Saturn II" has the meaning
ascribed thereto under "General Developments of Pembina – Developments in 2013";
"Saturn I Facility" means
Pembina's enhanced NGL extraction facility located in the Berland area of Alberta;
"SCADA" means supervisory
control and data acquisition. See "Other Information Relating to Pembina's Business – Information and Communication
Systems";
"SCO" means synthetic crude
oil;
"SEC" means the United States
Securities and Exchange Commission;
"SEEP" means the Saskatchewan
Ethane Extraction Plant, Pembina's 60 MMcf/d deep cut gas processing facility that is currently under construction, located in
southeast Saskatchewan;
"Senior Notes" means, collectively,
the Series C Senior Notes and the Series D Senior Notes;
"Series 1 Class A Preferred Shares"
means the cumulative redeemable rate reset Class A Preferred Shares, series 1 of Pembina, issued July 26, 2013. See "Description
of the Capital Structure of Pembina – Class A Preferred Shares";
"Series 2 Class A Preferred Shares"
means the cumulative redeemable floating rate Class A Preferred Shares, series 2 of Pembina, issuable on conversion of the Series
1 Class A Preferred Shares. See "Description of the Capital Structure of Pembina – Class A Preferred Shares";
"Series 3 Class A Preferred Shares"
means the cumulative redeemable rate reset Class A Preferred Shares, series 3 of Pembina, issued October 2, 2013. See "Description
of the Capital Structure of Pembina – Class A Preferred Shares";
"Series 4 Class A Preferred Shares"
means the cumulative redeemable floating rate Class A Preferred Shares, series 4 of Pembina, issuable on conversion of the Series
3 Class A Preferred Shares. See "Description of the Capital Structure of Pembina – Class A Preferred Shares";
"Series 5 Class A Preferred Shares"
means the cumulative redeemable rate reset Class A Preferred Shares, series 5 of Pembina, issued January 16, 2014. See "Description
of the Capital Structure of Pembina – Class A Preferred Shares";
"Series 6 Class A Preferred Shares"
means the cumulative redeemable floating rate Class A Preferred Shares, series 6 of Pembina, issuable on conversion of the Series
5 Class A Preferred Shares. See "Description of the Capital Structure of Pembina – Class A Preferred Shares";
"Series 7 Class A Preferred Shares"
means the cumulative redeemable rate reset Class A Preferred Shares, series 7 of Pembina, issued September 11, 2014. See "Description
of the Capital Structure of Pembina – Class A Preferred Shares";
"Series 8 Class A Preferred Shares"
means the cumulative redeemable floating rate Class A Preferred Shares, series 8 of Pembina, issuable on conversion of the Series
7 Class A Preferred Shares. See "Description of the Capital Structure of Pembina – Class A Preferred Shares";
"Series C Convertible Debentures"
means the 5.75 percent convertible unsecured subordinated debentures of Pembina issued November 24, 2010 and maturing November
30, 2020;
"Series C Senior Notes" means
the $200 million aggregate principal amount of unsecured senior notes of Pembina issued September 30, 2006 and due September 30,
2021 and which bear interest at a fixed rate of 5.58 percent per annum;
"Series D Senior Notes" means
the $267 million aggregate principal amount of unsecured senior notes of Pembina issued November 18, 2009 and due November 18,
2019 and which bear interest at a fixed rate of 5.91 percent per annum;
"Series E Convertible Debentures"
means the 5.75 percent convertible unsecured subordinated debentures maturing December 31, 2017 issued by Provident on November
1, 2010 and assumed by Pembina in April 2012 pursuant to the Provident Acquisition;
"Series F Convertible Debentures"
means the 5.75 percent convertible unsecured subordinated debentures maturing December 31, 2018 issued by Provident on April 29,
2011 and assumed by Pembina in April 2012 pursuant to the Provident Acquisition;
"Shareholders" means the holders
of Common Shares;
"Swan Hills Pipeline" means
the pipeline system and related facilities delivering light sweet crude oil from the Swan Hills area in Alberta, and from Acheson/Ellerslie
in Alberta, to Edmonton, Alberta;
"Syncrude" means Syncrude
Canada Ltd.;
"Syncrude Project" means the
joint venture that was formed for the recovery of oil sands, crude bitumen or products derived therefrom from the Athabasca oil
sands, located near Fort McMurray, Alberta;
"Syncrude Pipeline" means
the pipeline system and related facilities delivering SCO from the Syncrude Project into the Edmonton, Alberta area;
"Taylor to Boundary Lake Pipeline"
means the pipeline and related facilities delivering sweet HVP hydrocarbon products from Taylor, British Columbia to Boundary Lake,
Alberta;
"Terminal Agreement" has the
meaning ascribed thereto under "General Developments of Pembina – Developments in 2014";
"throughput" means volume
of product delivered through a pipeline;
"TSX" means the Toronto Stock
Exchange;
"Vantage" has the meaning
ascribed thereto under "General Developments of Pembina – Developments in 2014;
"Vantage Acquisition" has
the meaning ascribed thereto under "General Developments of Pembina – Developments in 2014";
"Vantage Expansion" has the
meaning ascribed thereto under "General Developments of Pembina – Developments in 2015";
"Vantage Pipeline" means the
HVP pipeline that links a growing supply of ethane from the North Dakota Bakken play to the petrochemical market in Alberta, originating
from a large-scale gas plant in Tioga, North Dakota extending approximately 700 kilometres northwest, through Saskatchewan and
terminating near Empress, Alberta, where it is connected to the Alberta Ethane Gathering System pipeline;
"West Coast Terminal" has
the meaning ascribed thereto under "General Developments of Pembina – Developments in 2014";
"WCSB" means the Western Canadian
Sedimentary Basin; and
"Western Pipeline" means the
pipeline system and related facilities delivering crude oil from Taylor, British Columbia to Kamloops, British Columbia.
All dollar amounts set forth in this Annual
Information Form are in Canadian dollars unless otherwise indicated. References to "$" or "C$" are to Canadian
dollars and references to "US$" are to United States dollars. On February 25, 2015, the exchange rate based on the noon
rate as reported by the Bank of Canada, was C$1.00 equals US$1.2419.
Except where otherwise indicated, all information
in this Annual Information Form is presented as at the end of Pembina's most recently completed financial year, being December
31, 2014.
ABBREVIATIONS AND CONVERSIONS
In this Annual Information Form, the following
abbreviations have the indicated meanings:
bbl and bbls |
barrel and barrels, each barrel representing |
|
34.972 Imperial gallons or 42 US gallons |
mmbbls |
millions of barrels |
bpd |
barrels per day |
mbpd |
thousands of barrels per day |
mcf |
thousands of cubic feet |
MMcf/d |
million cubic feet per day |
boe |
barrels of oil equivalent, using the conversion |
|
factor of 6 mcf of natural gas being |
|
equivalent to one bbl of oil |
boe/d |
barrels of oil equivalent per day |
mboe/d |
thousands of barrels of oil equivalent per day |
bcf/d |
billion cubic feet per day |
km |
kilometres |
Boe's may be misleading, particularly if used
in isolation. A boe conversion ratio of 6 mcf of natural gas: 1 bbl of oil is based on an energy equivalency conversion method
primarily applicable at the burner tip and does not represent a value equivalency at the wellhead.
The following table sets forth certain standard
conversions between Standard Imperial Units and the International System of Units (or metric units).
To convert from |
|
To |
|
Multiply by |
bbls |
|
cubic metres |
|
0.59 |
cubic metres |
|
bbls |
|
6.293 |
miles |
|
kilometres |
|
1.609 |
kilometres |
|
miles |
|
0.621 |
NON–GAAP AND ADDITIONAL GAAP MEASURES
Pembina's audited consolidated financial information
for the year ended December 31, 2014 may be found on Pembina's profile on the SEDAR website at www.sedar.com, and in Pembina's
annual report on Form 40-F filed on Pembina's profile on the EDGAR website at www.sec.gov, are presented in compliance with International
Financial Reporting Standards ("IFRS"), which have converged with Canadian generally accepted accounting principles
("GAAP"). Certain of the financial information included in such financial statements is contained within this
Annual Information Form. Readers should also take note, however, that within this Annual Information Form the terms "net revenue"
and "operating margin" are used to describe certain financial information of Pembina and that these terms are not defined
by GAAP.
"Net revenue" is a non-GAAP financial
measure which is defined as total revenue less cost of goods sold including product purchases. Management believes that net revenue
provides investors with a single measure to indicate the margin on sales before non-product operating expenses that is comparable
between periods. Management utilizes net revenue to compare consecutive results, particularly in the Midstream business, to aggregate
revenue generated by each of Pembina's businesses and to set comparable objectives.
"Operating margin" is an additional
GAAP financial measure which is defined as gross profit before depreciation and amortization included in operations and unrealized
gain/loss on commodity-related derivative financial instruments. Management believes that operating margin provides useful information
to investors for assessing the financial performance of Pembina's operations. Management utilizes operating margin in setting objectives
and views it as a key performance indicator of Pembina's success.
The intent of non-GAAP and additional GAAP
measures is to provide additional useful information to investors and analysts though the measures do not have any standardized
meaning under IFRS. The measures should not, therefore, be considered in isolation or used in substitute for measures of performance
prepared in accordance with IFRS. Other issuers may calculate these non-GAAP and additional GAAP measures differently.
Readers should be cautioned that net revenue
and operating margin should not be construed as alternatives to earnings, cash flow from operating activities or other measures
of financial results determined in accordance with GAAP as an indicator of Pembina's performance.
For more information with respect to financial
measures which have not been defined by GAAP including reconciliations to the closest comparable GAAP measure, see the "Non–GAAP
and Additional GAAP Measures" section of the MD&A, which is incorporated by reference herein.
FORWARD–LOOKING STATEMENTS AND INFORMATION
Certain statements contained in this Annual
Information Form constitute "forward-looking statements" within the meaning of the United States Private Securities
Litigation Reform Act of 1995 and "forward-looking information" within the meaning of applicable Canadian securities
legislation (collectively, "forward-looking statements"). All forward-looking statements are based on Pembina's
current expectations, estimates, projections, beliefs and assumptions based on information available at the time the statement
was made and in light of its experience and its perception of historical trends. Forward-looking statements are typically identified
by words such as "anticipate", "continue", "estimate", "expect", "may", "will",
"project", "should", "could", "would", "believe", "plan", "intend",
"design", "target", "undertake", "view", "indicate", "maintain", "explore",
"entail", "schedule", "objective", "strategy", "likely", "potential",
"envision", "aim", "outlook", "propose", "goal", "envisions", and similar
expressions suggesting future events or future performance.
By their nature, such forward-looking statements
involve known and unknown risks, uncertainties and other factors that may cause actual results or events to differ materially from
those anticipated in such forward-looking statements. Pembina believes the expectations reflected in those forward-looking statements
are reasonable but no assurance can be given that these expectations will prove to be correct and such forward-looking statements
included in this Annual Information Form should not be unduly relied upon. These statements speak only as of the date of the Annual
Information Form.
In particular, this Annual Information Form
contains forward-looking statements pertaining to, among other things, the following:
| · | the future levels of cash dividends that
Pembina intends to pay to its shareholders, the dividend payment dates and the tax treatment thereof; |
| · | planning, construction, capital expenditure
estimates, schedules, expected capacity, incremental volumes, in-service dates, rights, activities and operations with respect
to new construction of, or expansions on existing, pipelines, gas services facilities, fractionation facilities, terminalling,
storage and hub facilities and other facilities or energy infrastructure; |
| · | pipeline, processing, fractionation and
storage facility and system operations and throughput levels; |
| · | treatment under governmental regulatory
regimes including environmental regulations and related abandonment and reclamation obligations and stakeholder consultation requirements; |
| · | Pembina's strategy and the development
and expected timing of new business initiatives, growth opportunities, and succession planning; |
| · | Pembina's strategy for payment of future
abandonment costs and decommissioning obligations; |
| · | increased throughput potential due to
increased oil and gas industry activity and new connections and other initiatives on Pembina's pipelines and at Pembina's facilities; |
| · | expected future cash flows, future contractual
obligations, future financing options, availability of capital to fund growth plans, operating obligations and dividends, and the
use of proceeds from financings; |
| · | tolls and tariffs and processing, transportation,
fractionation, storage and services commitments and contracts; |
| · | operating risks (including the amount
of future liabilities related to pipeline spills and other environmental incidents) and related insurance coverage and inspection
and integrity programs; |
| · | inventory and pricing in the North American
liquids market; |
| · | decommissioning and abandonment obligations;
and |
| · | competitive conditions and Pembina's ability
to position itself competitively in the industry. |
Various factors or assumptions are typically
applied by Pembina in drawing conclusions or making the forecasts, projections, predictions or estimations set out in forward-looking
statements based on information currently available to Pembina. These factors and assumptions include, but are not limited to:
| · | oil and gas industry exploration and development
activity levels and the geographic region of such activity; |
| · | the success of Pembina's operations; |
| · | prevailing commodity prices and exchange
rates and the ability of Pembina to maintain current credit ratings; |
| · | the availability of capital to fund future
capital requirements relating to existing assets and projects; |
| · | expectations regarding participation in
Pembina's DRIP; |
| · | future operating costs, including geotechnical
and integrity costs; |
| · | in respect of current developments, expansions,
planned capital expenditures, completion dates and capacity expectations: that third parties will provide any necessary support;
that any third party projects relating to Pembina's growth projects will be sanctioned and completed as expected; that any required
commercial agreements can be reached; that all required regulatory and environmental approvals can be obtained on the necessary
terms in a timely manner; that counterparties will comply with contracts in a timely manner; that there are no unforeseen events
preventing the performance of contracts or the completion of the relevant facilities; and that there are no unforeseen material
costs relating to the facilities which are not recoverable from customers; |
| · | in respect of the stability of Pembina's
dividends: prevailing commodity prices, margins and exchange rates; that Pembina's future results of operations will be consistent
with past performance and management expectations in relation thereto; the continued availability of capital at attractive prices
to fund future capital requirements relating to existing assets and projects, including but not limited to future capital expenditures
relating to expansion, upgrades and maintenance shutdowns; the success of growth projects; future operating costs; that counterparties
to material agreements will continue to perform in a timely manner; that there are no unforeseen events preventing the performance
of contracts; and that there are no unforeseen material construction or other costs related to current growth projects or current
operations; |
| · | prevailing regulatory, tax and environmental
laws and regulations; and |
| · | the amount of future liabilities relating
to environmental incidents and the availability of coverage under Pembina's insurance policies (including in respect of Pembina's
business interruption insurance policy). |
The actual results of Pembina could differ
materially from those anticipated in these forward-looking statements as a result of the material risk factors set forth below:
| · | the regulatory environment and decisions
and Aboriginal consultation requirements; |
| · | the impact of competitive entities and
pricing; |
| · | labour and material shortages; |
| · | reliance on key relationships and agreements; |
| · | the strength and operations of the oil
and natural gas production industry and related commodity prices; |
| · | non-performance or default by counterparties
to agreements which Pembina or one or more of its affiliates has entered into in respect of its business; |
| · | failure to achieve the anticipated benefits
and successful integration of acquisitions; |
| · | actions by governmental or regulatory
authorities including changes in tax laws and treatment, changes in royalty rates or increased environmental regulation; |
| · | fluctuations in operating results; |
| · | adverse general economic and market conditions
in Canada, North America and elsewhere, including changes in interest rates, foreign currency exchange rates and commodity prices;
and |
| · | other risk factors as set out in this
Annual Information Form under "Risk Factors". |
These factors should not be construed as exhaustive.
Unless required by law, Pembina does not undertake any obligation to publicly update or revise any forward-looking statements,
whether as a result of new information, future events or otherwise. Any forward-looking statements contained herein are expressly
qualified by this cautionary statement.
CORPORATE STRUCTURE
Name, Address and Formation
Pembina Pipeline Corporation is a corporation
amalgamated under the ABCA. It is the successor to Pembina Pipeline Income Fund (the "Fund") following the completion
of the reorganization of the Fund from an income trust structure to a corporate structure by way of plan of arrangement involving
the Fund, Pembina and the holders of the Fund's trust units pursuant to which the trust was reorganized into Pembina on October
1, 2010. Pembina's principal and registered office is located at Suite 4000, 585 - 8th Avenue S.W., Calgary, Alberta, T2P 1G1.
Provident Acquisition
On January 15, 2012, Pembina and Provident
entered into an arrangement agreement (the "Provident Arrangement Agreement") pursuant to which Pembina agreed
to acquire all of the outstanding Provident Shares by way of a plan of arrangement under the Business Corporations Act (Alberta)
(the "Provident Acquisition"). The Provident Acquisition was completed on April 2, 2012. Holders of Provident
Shares received 0.425 of a Common Share for each Provident Share held for a total consideration of 116,535,750 Common Shares. Under
the Provident Acquisition, Pembina assumed all of the rights and obligations of Provident relating to the Series E Convertible
Debentures and the Series F Convertible Debentures, which received a supplemental listing on the TSX under the symbols "PPL.DB.E"
and "PPL.DB.F", respectively. See "Description of the Capital Structure of Pembina – Convertible Debentures".
In connection with the Provident Acquisition,
the Common Shares were listed and began trading on the NYSE under the symbol "PBA" on April 2, 2012 and the Provident
Shares were delisted from the NYSE.
Pursuant to the Provident Acquisition, Provident
amalgamated with a wholly-owned subsidiary of Pembina and continued under the name "Pembina NGL Corporation". The acquired
business forms a part of the Midstream business of Pembina.
For a further description of the Provident
Acquisition, please refer to the business acquisition report of Pembina dated May 1, 2012, a copy of which was filed on Pembina's
SEDAR profile at www.sedar.com and on EDGAR at www.sec.gov.
Pembina's Subsidiaries
The following chart indicates Pembina's major
subsidiaries, including their jurisdictions of formation and the percentage of common equity or other ownership interest owned,
or controlled or directed, directly or indirectly, by Pembina or its subsidiaries.
Principal Subsidiaries(1) |
Jurisdiction of
Incorporation/Organization |
Ownership |
Pouce Coupé Pipe Line Ltd. |
Canada (Federal) |
100% |
Plateau Pipe Line Ltd. |
Alberta |
100% |
Alberta Oil Sands Pipeline Ltd. |
Alberta |
100% |
Pembina Marketing Ltd. |
Alberta |
100% |
Pembina Gas Services Ltd. |
Alberta |
100% |
Pembina Pipeline |
Alberta |
100% |
Pembina Oil Sands Pipeline L.P. |
Alberta |
100% |
Pembina Midstream Inc. |
Alberta |
100% |
Pembina Midstream Limited Partnership |
Alberta |
100% |
Pembina Gas Services Limited Partnership |
Alberta |
100% |
Pembina NGL Corporation |
Alberta |
100% |
Pembina Facilities NGL LP |
Alberta |
100% |
Pembina Empress NGL Partnership |
Alberta |
100% |
Pembina Resource Services Canada |
Alberta |
100% |
Pembina Infrastructure and Logistics LP |
Alberta |
100% |
Pembina Prairie Facilities Holdco Ltd. |
Saskatchewan |
100% |
Pembina Prairie Facilities Ltd. |
Saskatchewan |
100% |
Pembina Resource Services (U.S.A.) |
Michigan, US |
100% |
| (1) | Subsidiaries are omitted where, at Pembina's most recent financial year-end: (i) the total assets
of the subsidiary do not exceed 10 percent of Pembina's consolidated assets; (ii) the revenue of the subsidiary does not exceed
10 percent of Pembina's consolidated revenue; and (iii) the conditions in (i) and (ii) would be satisfied if the omitted subsidiaries
were aggregated, and the reference in (i) and (ii) changed from 10 percent to 20 percent. |
Amended Articles
On March 27, 2012, Pembina filed articles of
amendment under the ABCA to increase the maximum number of directors of Pembina from nine to eleven after receiving Shareholder
approval for such amendment.
On May 13, 2013, Pembina filed articles of
amendment under the ABCA to create a new class of shares, the Class A Preferred Shares, to change the designation and terms of
the Internal Preferred Shares, and to increase the maximum number of directors of Pembina from eleven to thirteen, after receiving
Shareholder approval for such amendments. On July 22, 2013, Pembina filed articles of amendment under the ABCA to create the Series
1 and Series 2 Class A Preferred Shares. On September 30, 2013, Pembina filed articles of amendment under the ABCA to create the
Series 3 and Series 4 Class A Preferred Shares. On January 9, 2014 Pembina filed articles of amendment under the ABCA to create
the Series 5 and Series 6 Class A Preferred Shares. On September 4, 2014 Pembina filed articles of amendment under the ABCA to
create the Series 7 and Series 8 Class A Preferred Shares.
GENERAL DEVELOPMENTS OF PEMBINA
During the three-year period ending on December
31, 2014 and 2015 year-to-date Pembina continued to execute its business plan and advance its growth strategy as discussed below.
Developments in 2012
2012 |
January |
Pembina announced that it had entered into an agreement to acquire all of the issued and outstanding common shares of Provident by way of a plan of arrangement under the ABCA to create an integrated company that would be a leading player in the North American energy infrastructure sector. |
|
|
|
2012 |
January |
Pembina reinstated the DRIP effective as of the January 25, 2012 record date and the corresponding dividend was paid on February 15, 2012. The DRIP was reinstated to help fund Pembina's ongoing capital program. See "Description of the Capital Structure of Pembina – Premium DividendTM and Dividend Reinvestment Plan". |
|
|
|
2012 |
February |
Mick Dilger was appointed to the position of President and Chief Operating Officer, effective February 15, 2012. |
|
|
|
2012 |
February |
The construction on the enhanced NGL extraction facility at the Musreau Gas Plant, including a new 205 MMcf/d NGL extraction facility and the related 10 km NGL sales pipeline connected to the Peace Pipeline (the "Musreau Deep Cut Facility"), was completed in 2011 and commissioning of the Musreau Deep Cut Facility occurred on February 15, 2012. |
|
|
|
2012 |
March |
Pembina entered into a new unsecured revolving credit facility of $800 million with a syndicate of Canadian banking institutions for a term of 5 years. Pembina increased the facility to $1.5 billion on closing the Provident Acquisition. See "Description of the Capital Structure of Pembina – Credit Facilities". |
|
|
|
2012 |
March |
The BCUC approved the terms of five-year transportation agreements negotiated between Pembina and the Western Pipeline shippers. In addition to allowing Pembina to earn a reasonable rate of return, the contracts allowed for direct flow through of all operating costs including upgraded integrity management program costs. |
|
|
|
2012 |
April |
The Provident Acquisition was completed effective April 2, 2012; the Common Shares were listed on the NYSE under the symbol "PBA"; and Pembina increased the monthly dividend on its Common Shares by 3.8 percent (from $0.13 per share per month to $0.135). See "Corporate Structure – Provident Acquisition" and "Description of the Capital Structure of Pembina – Convertible Debentures". |
|
|
|
2012 |
April |
In July 2002, Pembina issued $100 million aggregate principal amount of senior secured notes due 2017 and bearing interest at 7.38 percent per annum on a private placement basis, which were redeemed by Pembina on April 30, 2012. |
|
|
|
2012 |
May |
Pembina expanded the capacity on the Drayton Valley Pipeline by completing the refurbishing of the Calmar booster station which resulted in an additional 50,000 bpd and increased system capacity to approximately 190,000 bpd. |
|
|
|
2012 |
September |
Pembina completed and commissioned an 8,000 bpd expansion at the Redwater Plant. |
2012 |
September |
Pembina brought a fee-for-service cavern storage facility on stream at the Redwater Plant. |
|
|
|
2012 |
September |
The expansion of the Musreau Gas Plant's shallow cut gas processing capability by 50 MMcf/d was completed in August 2012 and was placed into service on September 13, 2012. Pembina entered into contracts with a minimum term of five years with area producers for the entire capacity of the expansion on a fee-for-service basis. |
|
|
|
2012 |
October |
On October 22, 2012, Pembina issued and sold $450 million aggregate principal amount of Medium Term Notes, Series 2 pursuant to a pricing supplement under its 2010 Base Shelf Prospectus as supplemented by a prospectus supplement thereto dated October 17, 2012. The notes have a fixed interest rate of 3.77 percent per annum, paid semi-annually, and will mature on October 24, 2022. Pembina used the net proceeds from the sale of the Medium Term Notes, Series 2 to repay a portion of Pembina's then-existing credit facilities. See "Description of the Capital Structure of Pembina – Medium Term Notes". |
|
|
|
2012 |
October |
Construction started on a joint venture full-service terminal in the Judy Creek, Alberta area which will focus on emulsion treating (separating oil from impurities to meet shipping quality requirements), produced water handling and water disposal. |
|
|
|
2012 |
October |
Pembina commenced construction on the Saturn I Facility and Resthaven Facility. |
|
|
|
2012 |
November |
Pembina announced plans to significantly expand NGL, crude oil and condensate throughput capacity on the Peace Pipeline and Peace/Northern NGL System. Expansion plans included increasing crude and condensate capacity on the Peace Pipeline by 55,000 (the "Phase II Crude and Condensate Expansion") and increasing NGL capacity on the Peace/Northern NGL System by 53,000 bpd (the "Phase II NGL Expansion"). |
Developments in 2013
2013 |
February |
On February 22, 2013, Pembina filed the 2013 Base Shelf Prospectus with the securities commissions or similar regulatory authorities in each of the Provinces of Canada. |
|
|
|
2013 |
February |
Pembina announced it reached its contractual threshold to proceed with its previously announced Phase II Crude and Condensate Expansion. Pembina expects the total cost of Phase II Crude and Condensate Expansion to be approximately $250 million (including the mainline expansion and tie-ins). Once complete, this expansion is expected to increase capacity on the Peace Pipeline to 250,000 bpd. The Phase II Crude and Condensate Expansion is underpinned by long-term, fee-for-service agreements with area producers. The combination of the Phase I and Phase II Crude and Condensate Expansions were expected to increase capacity by 61 percent from the then current levels. |
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2013 |
March |
Pembina announced plans to proceed with an expansion of its existing NGL infrastructure at a combined capital cost of approximately $1 billion. The expansion comprises three components along the NGL value chain, including (a) the twinning of the Saturn I Facility at a capital cost of approximately $170 million ("Saturn II"), (b) the twinning of the Redwater Plant at a capital cost of approximately $415 million ("RFS II"), and (c) the previously announced Phase II NGL Expansion at a capital cost of approximately $415 million. |
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2013 |
March |
Pembina announced an open season to determine industry interest in a future expansion of its crude oil, condensate and NGL pipelines in northwest Alberta. |
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2013 |
March |
On March 21, 2013, Pembina completed a bought deal offering of 11,206,750 Common Shares at a price of $30.80 per Common Share pursuant to a prospectus supplement dated March 14, 2013 under its 2013 Base Shelf Prospectus, for aggregate gross proceeds of approximately $345 million. Pembina used the net proceeds from the sale of the Common Shares to reduce short-term indebtedness of Pembina under its then-current credit facilities and for general corporate purposes. |
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2013 |
May |
Pembina filed amended articles to: (i) create the Class A Preferred Shares; (ii) change the designation and terms of the Internal Preferred Shares; and (iii) increase the maximum number of directors of Pembina from 11 to 13. |
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2013 |
April |
On April 30, 2013, Pembina issued and sold $200 million aggregate principal amount of Medium Term Notes, Series 3 pursuant to a pricing supplement under its 2013 Base Shelf Prospectus as supplemented by a prospectus supplement thereto dated April 24, 2013. The notes have a fixed interest rate of 4.75 percent per annum, paid semi-annually, and will mature on April 30, 2043. Pembina used the net proceeds from the sale of the Medium Term Notes, Series 3 to repay a portion of Pembina's existing Credit Facilities. See "Description of the Capital Structure of Pembina – Medium Term Notes". |
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2013 |
June |
Pembina announced that it had entered into an Engineering Support Agreement ("ESA") for a diluent and diluted bitumen pipeline system (the "Cornerstone Pipeline") associated with a third party's enhanced oil recovery developments in northeast Alberta. |
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2013 |
July |
On July 26, 2013, Pembina completed a bought deal offering of 10,000,000 Series 1 Class A Preferred Shares at a price of $25.00 per Series 1 Class A Preferred Share pursuant to a prospectus supplement dated July 19, 2013 under its 2013 Base Shelf Prospectus, for aggregate gross proceeds of $250 million. Pembina used the net proceeds from the sale of Series 1 Class A Preferred Shares to partially fund capital projects, to reduce short-term indebtedness of Pembina under its then-current credit facilities and for other general corporate purposes. See "Description of the Capital Structure of Pembina – Class A Preferred Shares". |
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2013 |
July |
On July 31, 2013, Pembina announced that it had secured long-term, fee-for-service agreements with a third party for the use of an underground storage cavern at Pembina's Redwater Plant, and that it plans to upsize certain facilities associated with RFS II to accommodate the future development of a third 55,000 bpd propane-plus fractionator at Redwater ("RFS III"); |
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2013 |
August |
Pembina announced that it plans to construct, own and operate a new 100 MMcf/d shallow cut gas plant and associated NGL and gas gathering pipelines near its existing Musreau Gas Plant in west central Alberta ("Musreau II"), at an expected capital cost of $110 million. Musreau II is underpinned by long-term contracts with area producers for 100 percent of the facility's capacity. |
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2013 |
August |
On August 9, 2013, Pembina announced that its Board of Directors approved a 3.7 percent increase in its monthly Common Share dividend rate from $0.135 per Common Share to $0.14 per Common Share. |
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2013 |
September |
Pembina announced on September 3, 2013 that it acquired a site in the Alberta industrial heartland for approximately $20 million, featuring an existing rail system and utility infrastructure to support the future development of rail, terminalling and storage facilities (the "Heartland Hub"). The Heartland Hub is in close proximity to major oil sands pipeline rights-of-way, existing crude oil and petrochemical infrastructure and Pembina's Redwater Plant. |
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2013 |
September |
Pembina announced on September 16, 2013, plans to proceed with a $115 million expansion of its Peace Pipeline System between Simonette and Fox Creek, Alberta. |
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2013 |
October |
The Saturn I Facility was placed into service. The Saturn I Facility is connected to Talisman Energy Inc.'s Wild River and Bigstone gas plants through existing and newly constructed gas gathering lines. The Saturn I Facility has a gross capacity of 200 MMcf/d and 13,500 bpd of NGL extraction capability. Pembina also completed an NGL pipeline lateral to transport the extracted NGL from the Saturn I Facility to the Peace Pipeline. |
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2013 |
October |
On October 2, 2013, Pembina completed a bought deal offering of 6,000,000 Series 3 Class A Preferred Shares at a price of $25.00 per Series 3 Class A Preferred Share pursuant to a prospectus supplement dated September 25, 2013 under its 2013 Base Shelf Prospectus, for aggregate gross proceeds of $150 million. Pembina used the net proceeds from the sale of Series 3 Class A Preferred Shares to partially fund capital projects, to reduce short-term indebtedness of Pembina under its then-current credit facilities and for other general corporate purposes. See "Description of the Capital Structure of Pembina – Class A Preferred Shares". |
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2013 |
December |
Pembina completed construction on the Phase I NGL Expansion and the Phase I Crude and Condensate Expansion. |
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2013 |
December |
Pembina announced that pursuant to its previously announced open season in March 2013, it had reached binding commercial agreements to proceed with constructing approximately $2 billion in pipeline expansions, underpinned by long-term, fee-for-service agreements with 30 customers in Pembina's operating areas (the "Phase III Expansion"). The Phase III Expansion will follow and expand upon certain segments of Pembina's existing pipeline systems from Taylor, British Columbia southeast to Edmonton, Alberta. With the Phase III Expansion, Pembina revised its 2014 capital budget to approximately $1.7 billion. |
Developments in 2014
2014 |
January |
Bob Michaleski, Pembina's former President and Chief Executive Officer, retired effective December 31, 2013 and Mick Dilger, formerly President and Chief Operating Officer, assumed the role of Chief Executive Officer effective January 1, 2014 and also joined Pembina's board of directors. |
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2014 |
January |
On January 16, 2014, Pembina completed a bought deal offering of 10,000,000 Series 5 Class A Preferred Shares at a price of $25.00 per Series 5 Class A Preferred Share pursuant to a prospectus supplement dated January 9, 2014 under its 2013 Base Shelf Prospectus, for aggregate gross proceeds of $250 million. Pembina used the net proceeds from the sale of Series 5 Class A Preferred Shares to partially fund its 2014 capital budget, to reduce indebtedness of Pembina under its then-current credit facilities and for other general corporate purposes. See "Description of the Capital Structure of Pembina – Class A Preferred Shares". |
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2014 |
February |
On February 26, 2014, Pembina announced that the Chairman of the Board, Lorne Gordon, would step down effective April 1, 2014 and that Randall Findlay would assume the role of Chairman of the Board effective the same day. |
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2014 |
April |
Pembina was added to the S&P/TSX 60. |
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2014 |
April |
On April 4, 2014, Pembina issued and sold $600 million aggregate principal amount of Medium Term Notes, Series 4 pursuant to a pricing supplement under its 2013 Base Shelf Prospectus as supplemented by a prospectus supplement thereto dated April 1, 2014. The notes have a fixed interest rate of 4.81 percent per annum, paid semi-annually, and will mature on March 25, 2044. Pembina used the net proceeds from the sale of the Medium Term Notes, Series 4 to repay certain long-term debt as well as to fund Pembina's capital program and for other general corporate purposes. |
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2014 |
May |
Pembina announced that it had reached binding commercial agreements to proceed with constructing RFS III and a new HVP pipeline lateral that would extend the gathering potential of its Brazeau/Caroline Pipeline in the Willesden Green area of south-central Alberta, at an expected capital cost of approximately $400 million (including associated caverns and capital previously announced for the RFS III pre-build) for RFS III, and $60 million for the HVP lateral. |
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2014 |
August |
On August 6, 2014, Pembina placed its previously announced pipeline expansion between Simonette and Fox Creek into service. |
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2014 |
September |
On September 2, 2014, Pembina announced that it had entered into an agreement (the "Terminal Agreement") with the Port of Portland, Oregon to enable the development of Pembina's planned West Coast propane export terminal project (the "West Coast Terminal"). The Terminal Agreement set forth the terminal site, including an existing marine berth, located within the city of Portland for the development of the West Coast Terminal, and also outlined the material commercial lease terms for the West Coast Terminal, subject to Pembina and the Port entering into definitive agreements, and the receipt of all environmental and regulatory permits and approvals necessary for the development of the West Coast Terminal. |
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2014 |
September |
On September 4, 2014, Pembina announced that it had filed the necessary regulatory applications with the AER for its Fox Creek, Alberta to Namao Junction, Alberta segment of its previously announced Phase III Expansion. |
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2014 |
September |
On September 10, 2014, Pembina announced plans to expand its previously announced Phase III Expansion by constructing a new 16" diameter pipeline from Fox Creek, Alberta into Namao, Alberta and a new 12" diameter pipeline from Wapiti, Alberta into Kakwa. Pembina has since increased the size of the Wapiti to Kakwa pipeline from a 12" to a 24" diameter pipeline, at a combined estimated capital cost of approximately $435 million, bringing total estimated capital costs for the Phase III Expansion to $2.44 billion. |
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2014 |
September |
On September 11, 2014, Pembina completed a bought deal offering of 10,000,000 Series 7 Class A Preferred Shares at a price of $25.00 per Series 7 Class A Preferred Share pursuant to a prospectus supplement dated September 4, 2014 under its 2013 Base Shelf Prospectus, for aggregate gross proceeds of $250 million. Pembina used the net proceeds from the sale of Series 7 Class A Preferred Shares to help fund a portion of the cash consideration for the Vantage Acquisition (as defined below), which closed on October 24, 2014, as well as to fund a portion of the remainder of the Company's 2014 capital expenditure program and for general corporate purposes. See "Description of the Capital Structure of Pembina – Class A Preferred Shares". |
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2014 |
September |
On September 25, 2014, Pembina announced that it had been informed by Statoil that Statoil's Cornerstone oil sands project had been deferred for an indeterminate period of time, and as a result the ESA for the Cornerstone Pipeline expired at the end of September and no additional capital would be spent on the pipeline project. |
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2014 |
September |
On September 30, 2014, Pembina announced that Thomas W. Buchanan had tendered his resignation from Pembina's Board of Directors. |
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2014 |
October |
On October 6, 2014, Pembina placed the Resthaven Facility into service. |
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2014 |
October |
On October 7, 2014, Pembina announced that Anne-Marie Ainsworth had been appointed to Pembina's Board of Directors. |
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2014 |
October |
On October 9, 2014, Pembina announced plans to proceed with construction of the Canadian Diluent Hub ("CDH"), a large-scale condensate and diluents terminal at its Heartland Hub site near Fort Saskatchewan, Alberta, initially including 600,000 barrels of above ground storage, multiple inbound and outbound pipeline connections, plus associated pumping and metering facilities, at an estimated capital cost of $350 million. In anticipation of future customer demand and as part of an anticipated second phase of development, Pembina also completed detailed engineering studies for the construction of additional rail facilities and underground cavern storage development. |
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2014 |
October |
On October 10, 2014, Pembina announced that it had entered into commercial agreements to proceed with an expansion of the Company's Resthaven Facility and to build, own and operate a gas gathering pipeline that would deliver gas into the Resthaven Facility, at a total estimated capital cost of $170 million (the "Resthaven Expansion"). |
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2014 |
October |
On October 24, 2014, Pembina announced that it had closed the acquisition of the Vantage Pipeline and Mistral Midstream Inc.'s interest in SEEP, through the acquisition of all of the equity interests of Vantage Pipeline Canada ULC, Vantage Pipeline US LP (collectively, "Vantage") and Mistral Midstream Inc. (the "Vantage Acquisition") for total consideration of $733 million (US$653 million). Consideration for the transaction consisted of cash of $217 million (US$193 million), the issuance of 5.61 million Common Shares of the Company valued at $266 million (US$237 million), and repayment of Vantage's bank indebtedness of $250 million (US$223 million) at closing. The fair value of the Common Shares issued was based on the TSX listed share price on the closing date of the acquisition. |
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2014 |
November |
On November 11, 2014, Pembina announced that it had entered into binding agreements to proceed with a $210 million expansion to Pembina's pipeline infrastructure in northeast British Columbia (the "NEBC Expansion"), which will transport condensate and NGL for various producers in the Montney resource play. |
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2014 |
November |
On November 27, 2014, Pembina announced plans to construct a new facility and expand its gas processing capacity at the Musreau Gas Plant by 100 MMcf/d ("Musreau III") for an estimated capital cost of $105 million. |
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2014 |
December |
On December 17, 2014, Pembina placed the Musreau II facility into service, ahead of the previously scheduled in-service date of first quarter 2015. |
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2014 |
December |
Pembina announced its capital spending plan of approximately $1.9 billion for 2015 directed mainly at multi-year execution projects that have in-service dates ranging up to mid-2017. |
2015 Year to Date Developments
2015 |
January |
Peter Robertson, Pembina's former Senior Vice President and Chief Financial Officer, retired effective December 31, 2014 and Scott Burrows was promoted to the position of Vice President, Finance and Chief Financial Officer effective January 1, 2015. |
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2015 |
January |
On January 15, 2015, Pembina announced that Gordon J. Kerr had been appointed to Pembina's Board of Directors. |
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2015 |
February |
On February 2, 2015, Pembina issued and sold $450 million aggregate principal amount of Medium Term Notes, Series 5 and $150 million aggregate principal amount of its Medium Term Notes, Series 3, through a re-opening, pursuant to two pricing supplements dated January 28, 2015 under its 2013 Base Shelf Prospectus as supplemented by a prospectus supplement thereto dated April 24, 2013. The Medium Term Notes, Series 5 have a fixed interest rate of 3.54 percent per annum, paid semi-annually, and will mature on February 3, 2025. Pembina used the net proceeds from the sale of the notes to reduce short-term indebtedness of Pembina under its Credit Facilities as well as to fund Pembina's capital program and for other general corporate purposes. |
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2015 |
February |
On February 10, 2015, the Company announced that it had entered into agreements to expand the Vantage Pipeline (the "Vantage Expansion") for an estimated capital cost of $85 million. The Vantage Expansion entails increasing Vantage's mainline capacity from 40,000 bpd to approximately 68,000 bpd through the addition of mainline pump stations and the construction of a new 80 km, 8" gathering lateral. |
DESCRIPTION OF PEMBINA'S BUSINESS AND OPERATIONS
Pembina's Business Objective and Strategy
Pembina is a trusted member of the communities
in which it operates and is committed to generating value for its investors by running its business in a safe, environmentally
responsible manner that is respectful of community stakeholders. Pembina's goal is to provide highly competitive and reliable returns
to investors through monthly dividends on its Common Shares and quarterly dividends on its Class A Preferred Shares while enhancing
the long-term value of its securities. To achieve this, Pembina's strategy is to:
| · | Preserve value by providing safe, responsible,
cost-effective and reliable services. |
| · | Diversify Pembina's asset base along the
hydrocarbon value chain by providing integrated service offerings which enhance profitability. |
| · | Pursue projects or assets that are expected
to generate increased cash flow per share and capture long-life, economic hydrocarbon reserves. |
| · | Maintain a strong balance sheet through
the application of prudent financial management to all business decisions. |
Overview of Pembina's Business
There are three general sectors in the oil
and gas industry: "upstream", "midstream" and "downstream". The upstream sector encompasses exploration
for and production of hydrocarbon liquids in their raw forms. In the midstream sector, hydrocarbon products are gathered, processed,
transported and marketed to the downstream sector. The downstream sector consists of refiners, end-use customers, local distributers
and wholesalers.
Pembina is a leading transportation and
midstream service provider that has been serving North America's energy industry for over 60 years. Pembina owns and operates
an integrated system of pipelines that transport various hydrocarbon liquids including conventional and synthetic crude oil,
heavy oil and oil sands products, condensate (diluent) and NGL produced in western Canada and ethane produced in North
Dakota. Pembina also owns and operates gas gathering and processing facilities and an oil and NGL infrastructure and
logistics business. With facilities strategically located in western Canada and in NGL markets in eastern Canada and the
U.S., Pembina also offers a full spectrum of midstream and marketing services that span across its operations. Pembina's
integrated assets and commercial operations enable it to offer services needed by the energy sector along the hydrocarbon
value chain. The business segments of Pembina are grouped for functional, geographic and accounting purposes into four
categories, described in their respective sections: Conventional Pipelines; Oil Sands & Heavy Oil; Gas Services; and
Midstream.
Operations Overview
The
following map illustrates Pembina's assets:
The net revenue contribution from each of Pembina's
four businesses in 2014 was divided as follows:
The following table sets forth certain financial
and operating highlights for 2014, 2013 and 2012.
Financial and Operating Highlights
(in $ millions unless otherwise noted)
| |
Conventional
Pipelines | | |
Oil
Sands & Heavy Oil (2) | | |
Gas Services | | |
Midstream(3) | | |
Total(5)
(6) | |
| |
2014 | | |
2013 | | |
2012 | | |
2014 | | |
2013 | | |
2012 | | |
2014 | | |
2013 | | |
2012 | | |
2014 | | |
2013 | | |
2012 | | |
2014 | | |
2013 | | |
2012 | |
Average volume (mbpd, except as otherwise
indicated) | |
| 575 | | |
| 492 | | |
| 456 | | |
| 880 | | |
| 880 | | |
| 870 | | |
| 86 | (4) | |
| 53 | (4) | |
| 46 | (4) | |
| 119 | | |
| 109 | | |
| 98 | | |
| 1,660 | | |
| 1,534 | | |
| 1,470 | |
Revenue | |
| 513 | | |
| 411 | | |
| 339 | | |
| 204 | | |
| 195 | | |
| 172 | | |
| 165 | | |
| 121 | | |
| 88 | | |
| 5,259 | | |
| 4,346 | | |
| 2,847 | | |
| 6,069 | | |
| 5,006 | | |
| 3,427 | |
Net Revenue(1) | |
| 513 | | |
| 411 | | |
| 339 | | |
| 204 | | |
| 195 | | |
| 172 | | |
| 165 | | |
| 121 | | |
| 88 | | |
| 587 | | |
| 580 | | |
| 353 | | |
| 1,469 | | |
| 1,306 | | |
| 952 | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Operating expenses | |
| 211 | | |
| 162 | | |
| 130 | | |
| 68 | | |
| 64 | | |
| 55 | | |
| 58 | | |
| 43 | | |
| 29 | | |
| 69 | | |
| 91 | | |
| 60 | | |
| 406 | | |
| 360 | | |
| 274 | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Realized gain (loss) on commodity-related derivative financial instruments | |
| | | |
| 2 | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| 10 | | |
| (3 | ) | |
| (5 | ) | |
| 10 | | |
| (1 | ) | |
| (5 | ) |
Operating margin(1) | |
| 302 | | |
| 251 | | |
| 209 | | |
| 136 | | |
| 131 | | |
| 117 | | |
| 107 | | |
| 78 | | |
| 59 | | |
| 528 | | |
| 486 | | |
| 288 | | |
| 1,078 | | |
| 949 | | |
| 676 | |
Notes:
| (1) | See "Non–GAAP and Additional GAAP Measures". |
| (2) | Revenue is contract-based and independent of utilization
rates, therefore volumes reported are contracted capacity. |
| (3) | Midstream revenue is net of $4,672 million in cost of goods
sold, net of product purchases for 2014 (2013: $3,767 million; 2012: $2,494 million). Average volume in Midstream represents
NGL sales volumes. |
| (4) | Average volume for Gas Services is in mboe/d, which is converted
from MMcf/d at a ratio of 6:1. Average MMcf/d processed in 2014 was 515 (2013: 319 MMcf/d; 2012: 275 MMcf/d). |
| (5) | Not including corporate recoveries of $18 million for 2014
(2013: $3 million; 2012: $3 million). |
| (6) | Includes corporate and intersegment eliminations.
|
Further discussion of operational results and
new developments and outlook for Pembina's four business segments for the years ended December 31, 2014 and 2013 is contained in
the section "Operating Results" in the MD&A, which section is incorporated by reference herein.
Conventional Pipelines Business
Overview
Pembina's Conventional Pipelines business comprises
a well-maintained and strategically located 8,800 km pipeline network that extends across much of Alberta and parts of British
Columbia. In addition, the recently acquired Vantage Pipeline transports specification ethane from gas plants in North Dakota and
Saskatchewan to Empress, Alberta, where it is delivered onto a third party pipeline. The primary objectives of this business are
to provide safe, responsible and reliable transportation services for customers, pursue opportunities for increased throughput,
and maintain and/or grow sustainable operating margin on invested capital by capturing incremental volumes, expanding its pipeline
systems, managing revenue and following a disciplined approach to its operating expenses.
Major Customers
There are approximately 50 shippers (including
many major shippers of petroleum products in western Canada) on the conventional pipeline systems owned and operated by Pembina.
The major delivery points include the Enbridge Pipeline system, the Express Pipeline system (Pembina does not deliver here directly),
the Alberta Ethane Gathering System, the Kinder Morgan North 40 terminal and the TransMountain pipeline system in Edmonton, Alberta,
the refineries in the Edmonton area as well as the NGL fractionators near Fort Saskatchewan, Alberta. Deliveries are also made
to Husky Energy Inc.'s refinery in Prince George, British Columbia and to the TransMountain pipeline system at Kamloops, British
Columbia.
Contractual Arrangements
The contracts within Pembina's Conventional
Pipelines business are fee-for-service in nature, but vary in their structure as follows:
Legacy Contracts
Capacity on the Alberta Pipelines that has
not been secured under the "Current Contracting" structure described below is secured under fee-for-service, evergreen-style
contracts that allow Pembina to adjust tolls for actual volumes, expenses and capital expenditures on a periodic basis. These contracts
do not require Pembina to guarantee a specified amount of dedicated pipeline capacity for a customer. Rather, customers nominate
volumes on a monthly basis and tariffs are set by receipt and delivery points.
Pembina's B.C. Pipelines are operated under
a cost-of-service methodology whereby Pembina is able to flow through the actual operating costs of the systems to shippers while
recovering an acceptable return on invested capital.
Current Contracting
During 2012, 2013 and 2014, Pembina focused
on securing several expansions of and the majority of base volumes on its Peace and Northern Pipeline systems under a revised contractual
structure. Under these arrangements, service tariffs are set under the contract and customers receive a firm amount of pipeline
capacity for the transportation of their product. Through this process, the significant majority of the NGL product transported
on the Peace and Northern Pipeline systems was contracted under long-term, take-or-pay agreements that provided customers with
firm-service. The crude oil and condensate system expansions were initially contracted under arrangements that were not firm-service
in nature. In the second half of 2014, due to customer demand, Pembina converted a significant majority of the existing and expansion
capacity for crude oil and condensate on the Peace Pipeline system to firm-service, take-or-pay agreements. The Phase III Expansion,
including the additional capital for the project announced in 2014, was backstopped by firm-service, take-or-pay agreements averaging
ten years in length.
Competitive Environment
Competition among existing crude oil, condensate
and NGL pipelines is based primarily on the cost of transportation, access to supply, the quality and reliability of service, contract
carrier alternatives, and proximity and access to markets.
Pembina's Conventional Pipelines are feeder
pipelines that move products from batteries, processing facilities and storage tanks in the field to markets and export pipelines
primarily in the Edmonton/Fort Saskatchewan, Alberta, area. Given that the majority of Pembina's pipelines in its Conventional
Pipelines business are connected to existing oil batteries and infrastructure, existing volumes generally remain connected to the
pipeline system until it is uneconomical for Pembina to provide transportation services, in which case the connection may be discontinued
and the producer may truck volumes to an alternate delivery point. Due to the duration of Pembina's service tenure, the complex
nature of its systems and high levels of customer service, it is difficult for a competitor to replicate the service offering that
Pembina provides. Pembina's Phase III Expansion contracting process evidenced that customers are satisfied with Pembina's service
offering as such customers contracted with Pembina even though there was significant competition for the project.
Unlike connected facilities, unconnected volumes
of product are typically trucked to the most competitive truck unloading facility, and there is direct competition from pipelines
serving the same area. With respect to trucked volumes, the means by which a producer determines transport of its product is only
partially based on tariffs; it is also based on whether the volumes need some form of treatment to meet pipeline specifications,
as well as commercial competition to move volume based on blending opportunities. Pembina owns 17 truck terminals across its Conventional
Pipelines systems (these form part of the Midstream business), three of which are capable of emulsion treatment and water disposal,
to assist in aggregating unconnected volumes onto its systems. There are several other pipelines which compete on this basis in
certain of Pembina's operating areas. For example, the Alliance Pipeline, a natural gas gathering and pipeline system which transports
NGL-rich natural gas from northeastern British Columbia through northwestern Alberta to Chicago, Illinois, competes for the volumes
of NGL carried on Pembina's Peace/Northern NGL System. Other examples of competing pipelines include the Rainbow Pipeline and the
Rangeland Pipeline, which compete with Pembina's pipelines north and south of Edmonton, Alberta for crude oil and condensate volumes.
Producer activity focused on NGL development
continues to be strong in the Deep Basin Cretaceous, Montney and Duvernay resource plays served by Pembina's Peace and Northern
Pipelines. Continued crude oil and condensate development in the vicinity of Pembina's Peace Pipeline has materially increased
future volume forecasts as well. Pembina has successfully been able to leverage its existing assets to provide incremental new
capacity in these areas. This is evidenced by Pembina's numerous pipeline expansion projects, which are underpinned by long-term,
fee-for-service contracts with area producers. These fee-based contracts are only exposed to volume fluctuations above take-or-pay
commitments, providing a very stable cash flow. There is no direct commodity price exposure associated with this type of contract.
A delay in the development of downstream processing,
transportation and end-user facilities may also impact the future development and profitability of Pembina's Conventional Pipeline
systems. The Edmonton, Alberta area NGL fractionation capacity may need to be expanded to process the forecasted incremental NGL
volumes. Pembina is working diligently to address the potential longer-term capacity shortfall with its RFS II and RFS III fractionators,
both of which are currently under construction. Further, Alberta crude oil and NGL export transportation will require increased
capacity to accommodate forecasted volumes from Pembina and third party feeder pipeline systems. Limited ethylene cracking capacity
may also dampen ethane demand and hinder additional expansion of Pembina's NGL pipeline systems.
Other Information – Industry Regulations
The feeder pipeline industry in Alberta is
regulated by the AER. Once a permit to construct the pipeline is issued by the AER, subject to the licensing of operational matters
or a common carrier declaration, the pipeline is free to establish tariffs in a competitive environment. Tariffs are established
under contracts of varying terms and conditions and are also posted by location. Posted tariffs generally can be adjusted to respond
to changing volumes, costs and market circumstances. Contracted tariffs can also be adjusted, where permitted by the terms of the
contract, for such things as changes in power costs, municipal taxes, environmental, integrity and safety costs. Pipeline customers
have recourse to the AER, with respect to pipeline access and discrimination among customers, if they can establish that the pipeline
should be declared to be a common carrier. Once declared a common carrier, the AER has the authority to set rates for the pipeline.
No pipeline owned by Pembina in the province of Alberta has ever been declared to be a common carrier. Tariffs for all of Pembina's
Alberta Pipelines are generally established to recover all costs and earn a reasonable rate of return on the investment in its
pipelines.
The tariffs on the majority of the B.C. Pipelines
are regulated by the BCUC. The BCUC approves tariffs for common carriers and regulates others on a complaints basis.
Pipeline companies which own and/or operate
interprovincial or international pipelines fall under the NEB's jurisdiction. Certain pipelines owned by Pembina's subsidiary,
Pouce Coupé Pipeline Ltd., including the Northwestern System, the Northern System and the Pouce Coupé System, are
regulated by the NEB. Additionally, Pembina's Taylor to Boundary Lake Pipeline, which is owned by Pembina Energy Services Inc.,
a wholly-owned subsidiary of Pembina, and the Vantage Pipeline system, which is owned by Pembina
Prairie Facilities Ltd., a wholly-owned subsidiary of Pembina, are also regulated by the NEB.
Under NEB regulations, pipeline companies are
divided into two groups. Group 1 consists of the major pipeline companies which are subject to ongoing regulatory oversight by
the NEB. The other pipeline companies under the jurisdiction of the NEB, not included in Group 1, have been classified as Group
2. Each of Pembina's three subsidiaries that own NEB regulated pipelines is regulated as a Group 2 company by the NEB. For these
pipeline systems, the NEB only reviews the tariffs if a customer files a formal complaint concerning the tariffs. There have been
no complaints to the NEB about tariffs on these systems for as long as Pembina has owned and operated them.
Pembina is also subject to requirements relating
to pipeline abandonment on its NEB regulated pipelines. According to the NEB Reasons for Decision RH-2-2008, which set out the
guiding principles and considerations that would be used to set aside funds for pipeline abandonment for pipelines under the NEB's
jurisdiction, a five-year action plan for NEB-regulated companies to follow was established. During this five-year period, the
NEB issued Hearing Order MH-001-2013 to convene an oral public hearing to consider NEB regulated companies' proposals on how to
collect abandonment funds and the mechanisms proposed for abandonment fund collection.
In May, 2014, the NEB issued its MH-001-2013
Reasons for Decision which set out that by January 1, 2015, all NEB-regulated companies must have a set-aside mechanism in place
to begin accumulating funds to pay for pipeline abandonment. The Northwest Pipeline, Northern Pipeline and Pouce Coupé Pipeline's
proposed abandonment fund trust agreements were approved on December 10, 2014, and Pembina filed letters of credit to secure abandonment
funds for each of the Taylor to Boundary Lake Pipeline and the Vantage Pipeline on December
23, 2014. See "Risk Factors – Risks Inherent in Pembina's Business – Abandonment Costs."
Oil Sands & Heavy Oil Business
Overview
Pembina plays an important role in supporting
Alberta's oil sands and heavy oil industry. Pembina is the sole transporter of crude oil for the Syncrude Project (via the Syncrude
Pipeline) and the Horizon Project (via the Horizon Pipeline) to delivery points near Edmonton, Alberta. Pembina also owns and operates
the Nipisi and Mitsue pipelines, which provide transportation for producers operating in the Pelican Lake and Peace River heavy
oil regions of Alberta, and the Cheecham Lateral, which transports synthetic crude to oil sands producers operating southeast of
Fort McMurray, Alberta. The Oil Sands & Heavy Oil business operates approximately 1,650 km of pipeline and has 880 mbpd of
capacity under long-term, extendible contracts, which provide for the flow-through of eligible operating expenses to customers.
As a result, operating margin from this business is primarily driven by the amount of capital invested and is predominantly not
sensitive to fluctuations in operating expenses or actual throughput.
Major Customers
The major shippers on Pembina's oil sands,
heavy oil and diluent pipelines are CNRL, Syncrude and Cenovus. Pembina's oil sands and heavy oil pipelines provide dedicated service
under long-term contracts.
Contractual Arrangements
Pembina's Syncrude Pipeline has a capacity
of 389,000 bpd and is fully contracted to the owners of Syncrude under a cost-of-service, extendable, long-term agreement that
expires at the end of 2035.
Pembina's Cheecham Lateral has a capacity of
136,000 bpd and is fully contracted to shippers under the terms of a 25-year fixed return extendable agreement that expires in
2032.
The Horizon Pipeline is fully contracted to
CNRL and has an ultimate capacity of 250,000 bpd (with the addition of pump stations). The Horizon Pipeline is operated under the
terms of a 25-year fixed return contract, which extends to 2034.
The Nipisi Pipeline and Mitsue Pipeline are
contracted by CNRL, Cenovus and Pembina Midstream Limited Partnership under a 10-year fixed return agreement which commenced in
2011. This contract also has extension and expansion rights.
Competitive Environment
Current weakness in crude oil prices and export
constraints have the potential to negatively impact development of oil sands and heavy oil reserves in the WCSB. However, in the
long-term, producers are expected to continue to develop and execute on oil sands and heavy oil projects with a focus on shipping
bitumen and heavy oil blends to market rather than upgrading these products locally. Consequently, Pembina believes expansion of
existing condensate and synthetic crude diluent supply infrastructure as well as blended bitumen and heavy oil pipeline delivery
systems will be required in the future. See "Risk Factors – Reserve Replacement, Throughput and Product Demand."
Given the long-term nature of oil sands and
heavy oil investments, most pipelines serving existing production are underpinned by long-term transportation agreements. Competition
primarily arises with respect to incremental supply that requires additional pipeline capacity. In some cases, existing pipeline
companies have under-utilized assets which can be re-purposed to suit a customer's needs, giving them a competitive advantage when
bidding for new projects. In other cases, where construction of significant new infrastructure is required, pipeline companies
compete for these opportunities based primarily on their operating expertise, cost of capital and commercial flexibility.
Pembina expanded its Nipisi and Mitsue Pipeline
systems commencing in 2013, through the addition of pump stations, increasing capacity on the Nipisi Pipeline from 95,000 bpd to
105,000 bpd and on the Mitsue Pipeline from 18,000 bpd to 22,000 bpd, improving its competitive advantage in the areas served by
those lines.
Gas Services Business
Overview
Pembina's operations include a growing natural
gas gathering and processing business, which is strategically-positioned in active and emerging NGL-rich plays in the WCSB and
integrated with Pembina's other businesses. Gas Services provides gas gathering, compression, and both shallow and deep cut processing
services for its customers, primarily on a fee-for-service basis under long-term contracts. The NGL extracted through this business'
facilities are transported on Pembina's Conventional Pipelines. Operating assets within Gas Services include:
| · | Pembina's Cutbank Complex – located
near Grand Prairie, Alberta, this facility includes four shallow cut sweet gas processing plants (the Cutbank Gas Plant, the Musreau
Gas Plant, the Musreau II Facility and the Kakwa Gas Plant) and one deep cut gas processing plant (the Musreau Deep Cut Facility).
In total, the Cutbank Complex has 525 MMcf/d of processing capacity (468 MMcf/d net to Pembina) and 205 MMcf/d of ethane-plus extraction
capacity (net to Pembina). The Cutbank Complex also includes approximately 350 km of gathering pipelines. |
| · | Pembina's Saturn I Facility – located
near Hinton, Alberta, this facility includes 200 MMcf/d of ethane-plus extraction capacity as well as approximately 25 km of gathering
pipelines. |
| · | Pembina's Resthaven Facility – located
near Resthaven, Alberta, this facility includes 200 MMcf/d (134 MMcf/d net to Pembina) of extraction capacity. |
These facilities are connected to Pembina's
Peace Pipeline system. The Company continues to progress construction and development of numerous other facilities in its Gas Services
business to meet the growing needs of producers in west central Alberta.
Major Customers
Gas Services has approximately 50 customers,
including multi-national oil and gas companies as well as independent producers. Gas Services processes customers' natural gas
at Pembina's owned and operated Cutbank Complex, Saturn and Resthaven facilities and delivers the natural gas to the TransCanada
pipeline system and the NGL to the Pembina-owned and operated Peace Pipeline system.
Contractual Arrangements
Under the contractual arrangements with producers
associated with the Cutbank Complex, Saturn and Resthaven facilities, Pembina is largely protected from the impact of market fluctuations
in the price of natural gas and NGL. The gathering and processing business is based on charging fees to customers on the volume
of raw gas that is gathered and/or processed through its facilities and the fees are based on a fixed-fee-for-service methodology.
The contracts associated with the Gas Services business comprise a mixture of firm and interruptible service contracts of varying
durations. The contractual fee structure incorporates a capital fee based on functional unit usage, as well as provisions for the
recovery of operating costs and overhead recoveries.
Of Pembina's total processing capacity associated
with these facilities, 91 percent of the Cutbank Complex (including the recently completed Musreau II Facility), 100 percent of
the Saturn I Facility and 90 percent of the Resthaven Facility are contracted on a firm-service basis. Many of these firm-service
contracts incorporate a take-or-pay or fee for non-delivery commitment which allows the processor to manage capacity utilization
and revenue risk. In 2014, approximately 75 percent of the revenue from these facilities were protected under contracts containing
take-or-pay commitments. Any capacity that is not utilized on a firm-service basis is provided to area producers on an interruptible
basis.
Gas Services development projects, including
Saturn II, the Resthaven Expansion, SEEP and Musreau III also have a significant portion of their operating capacity secured under
long-term, take-or-pay arrangements.
Competitive Environment
Gas producers continued to focus their development
on liquid-rich plays during 2014 while NGL prices remained relatively more attractive than dry gas prices. Land positions are being
amassed by producers in the Deep Basin/liquid-rich gas regions of British Columbia and Alberta, which continues to support Pembina's
Gas Services expansion plans.
With its existing assets, Pembina is able to
process gas, extract valuable NGL from the gas and transport the NGL through its conventional pipelines to its fractionation facility
at its Redwater Plant in Fort Saskatchewan, Alberta, where Pembina is then able to separate the component parts of the NGL stream
for end-users. With its integrated service offering along the NGL value chain and substantial gas processing plant construction
experience, Pembina believes it is strongly positioned compared to other NGL service providers to capture new business proximal
to its existing operating areas. Evidence of this is Pembina's continuing ability to secure new projects, such as Saturn II, Musreau
III and the Resthaven Expansion.
Gas processing infrastructure requirements
are largely driven by commodity prices, particularly crude oil benchmark prices as they relate to natural gas prices. In times
where gas prices are relatively low and crude oil prices are relatively high, producers are incentivized to extract as much NGL
out of the raw gas stream as possible, as NGL prices are benchmarked off of crude oil versus natural gas. During times when crude
oil prices (and in turn, NGL prices) are lower, producers may opt to leave more liquids entrenched within their raw gas. Pembina
is flexible to offer facilities with varying degrees of liquids extraction capability to support customers in a variety of market
conditions.
Midstream Business
Overview
Pembina offers customers a comprehensive suite
of midstream products and services through its Midstream business as follows:
| · | Crude oil midstream assets comprise 17
truck terminals (including three capable of emulsion treatment and water disposal), and terminalling at downstream hub locations
at the PNT, which features storage, crude-oil-by-rail services and terminal connectivity. PNT includes: 21 inbound pipeline connections;
13 outbound pipeline connections; in excess of 1.2 mmbpd of crude oil and condensate supply connected to the terminal; and 310
mbbls of surface storage in and around the Edmonton and Fort Saskatchewan, Alberta areas. |
| · | NGL midstream includes two NGL operating
systems – Redwater West and Empress East. |
| o | The Redwater West NGL system ("Redwater West") includes the 750 MMcf/d (322.5
MMcf/d net to Pembina) Younger extraction and fractionation facility in British Columbia.; a 73 mbpd NGL fractionator and 7.9 mmbbls
of finished product cavern storage at the Redwater Plant in Redwater, Alberta; and third party fractionation capacity in Fort Saskatchewan,
Alberta. Redwater West purchases NGL mix from various natural gas and NGL producers and fractionates it into finished products
for further distribution and sale. Also located at the Redwater Plant is Pembina's rail-based terminal which services Pembina's
proprietary and customer needs for importing and exporting specification NGL and crude oil. |
| o | The Empress East NGL system ("Empress East") includes 2.3 bcf/d capacity in the
straddle plants at Empress, Alberta; 20 mbpd of fractionation capacity and 1.1 mmbbls of cavern storage in Sarnia, Ontario; and
5.1 mmbbls of hydrocarbon storage at Corunna, Ontario. Empress East extracts NGL mix from natural gas at the Empress straddle plants
and purchases NGL mix from other producers/suppliers. Ethane and condensate are generally fractionated out of the NGL mix at Empress
and sold into Alberta markets. The remaining NGL mix is transported by pipeline to Sarnia, Ontario for further fractionation, distribution
and sale. |
The financial performance of Pembina's Midstream
business can be affected by seasonal demands for products and other market factors. In NGL midstream, propane inventory generally
builds over the second and third quarters of the year and is sold in the fourth quarter and the first quarter of the following
year during the winter heating season. Condensate, butane and ethane are generally sold rateably throughout the year. See "Risk
Factors – Risks Inherent in Pembina's Business – Midstream Business – Market Risk".
Crude Oil Midstream: Major Customers
Pembina's crude oil midstream customers are
generally those who produce and/or market crude oil and condensate on Pembina's pipeline systems, are downstream markets for those
volumes, or are interested in ancillary services related to those volumes.
At Pembina's truck terminals, the Company's
customer base generally comprises the same group who seek to transport volumes on Pembina's conventional and oil sands pipeline
systems. Truck terminals are particularly attractive to those producers who are unable to justify pipeline/oil battery connections
due to relatively low daily bpd of production, or are producing in advance of being pipeline connected. During 2014, Pembina's
truck terminal network brought an average of 105,000 bpd onto the conventional pipelines.
Crude Oil Midstream: Contractual Arrangements
The contractual arrangements underpinning Pembina's
Crude Oil Midstream business vary by service offering. Certain of Pembina's full-service terminals are constructed and operated
under joint venture agreements with third parties.
In aggregate, the Crude Oil Midstream business'
broad service offerings leverage the value chain – focusing on services that complement the existing network of facilities
and energy infrastructure across Pembina's asset base. All facilities and services provided by Crude Oil Midstream are complementary
to one another and create synergies for Pembina and its customers.
NGL Midstream: Major Customers
Pembina's NGL Midstream business extracts,
processes, stores, transports and markets NGL and offers these services to third party customers across the WCSB and North America.
The assets are integrated across Canada and the US, and are also used to generate fee-for-service income. The business is supported
by an integrated supply, marketing and distribution function that contributes to the overall operating margin of Pembina.
Pembina purchases NGL mix from various natural
gas producers and fractionates it into finished products at the Redwater Plant. Redwater West also includes natural gas supply
volumes from the Younger NGL extraction plant located at Taylor in northeastern British Columbia. The Younger plant supplies specification
NGL to local markets as well as NGL mix supply to the Fort Saskatchewan area for fractionation and sale.
Pembina extracts NGL from natural gas at the
Empress straddle plants and sells ethane and condensate in the western Canadian marketplace while transporting propane (C3)/butane
(C4) NGL mix predominantly to Sarnia, Ontario for fractionation and sale into markets in central Canada and the eastern
United States.
Ethane is predominately purchased by third
party petro-chemical companies while another third party purchases the majority of the condensate from the Empress debutanizer.
Plains All American Pipeline operates the Plains E1 Plant at Empress, Alberta and the west to east system described herein. If
for any reason these parties were unable to perform their obligations under the various agreements with Pembina, the revenue and
the operations of Pembina's NGL midstream business could be negatively impacted. See "Risk Factors – Risks Inherent
in Pembina's Business – Reliance on Principal Customers and Operators".
NGL Midstream: Contractual Arrangements
The services provided by Pembina's NGL Midstream
business – including fractionation, storage, NGL terminalling, loading and offloading – are provided to third parties
on a cost-of-service or a fee basis utilizing assets at Pembina's Redwater Plant and Corunna, Ontario. Pembina also owns a debutanizer
at its Empress facility, which removes condensate from the NGL mix for sale as a diluent to blend with heavy oil. This service
is provided to a major energy company on a long-term, cost-of-service basis. Pembina's Redwater West and Empress East assets used
to generate this fee-for-service income are also employed to generate proprietary income.
Competitive Environment
Pembina's Midstream business model operates
in a competitive environment for transportation, terminalling, storage and rail. The demand for terminalling, storage and rail
is growing as downstream pipeline capacity is unable to keep pace with upstream supply growth and downstream consumption interest,
or where markets lack a physical connection to Canadian supplies.
Pembina's Midstream infrastructure and logistics
business is subject to competition from other truck terminals, storage facilities and fractionators which are either in the general
vicinity of the facilities or have gathering systems that are or could potentially extend into areas served by the facilities.
Producers in western Canada compete with producers
in other regions to supply crude oil, condensate, NGL and natural gas and other hydrocarbon products to customers in North America,
and the hydrocarbon industry also competes with other industries to supply the fuel, feedstock and other needs of consumers. Such
competition may have an adverse effect on the production of hydrocarbon products in western Canada and, as a result, on the demand
for Pembina's services.
The value potential associated with any Midstream
service offering is dependent upon the ability of Pembina to: provide connections to both downstream pipelines and end-use markets;
understand the value of the commodities transported, stored and terminalled; provide flexibility and a variety of storage options;
and, adjust to a liquid, responsive, forward commodity market. Pembina actively monitors market conditions and stream values and
qualities to target revenue opportunities and service offerings. Pembina is also proactively working with upstream and downstream
customers to develop value-added terminalling solutions and increase available optionality. Nevertheless, the Midstream business
is exposed to commodity price fluctuations, and the recent decline in commodity prices has impacted price differentials and the
book value of stored product. Furthermore, the prices of products that are marketed by Pembina are subject to volatility as a result
of such factors as seasonal demand changes, extreme weather conditions, general economic conditions, changes in crude oil markets
and other factors. See "Risk Factors – Midstream Business – Market Risk."
OTHER INFORMATION RELATING TO PEMBINA'S
BUSINESS
Information and Communication Systems
Pembina employs SCADA technology on all of
its pipeline systems. The SCADA systems allow for continuous electronic monitoring and control of the pipeline systems from dedicated
computer consoles located in Pembina's Edmonton control centre. Operators monitor the computer consoles 24 hours per day, 365 days
per year. The SCADA systems and associated leak detection software continually monitor pipeline flow and operating conditions.
Line balance calculations are performed automatically by the system and alarms are triggered when imbalances are detected or measured
pressures do not match those projected by software models.
In 2014, Pembina made progress on its long-term
initiative to upgrade and standardize the SCADA system and leak detection platforms used to remotely monitor and control Pembina's
pipeline systems. Pembina successfully migrated the control of three pipeline systems to its new environment. In the last quarter
of 2015, Pembina expects to decommission its oldest SCADA system.
Integrity Management
Pembina employs comprehensive integrity management
programs ("IMP's") and dedicates a significant portion of its annual operating budget directly to integrity management
activities. Pembina's IMP's include the systems, processes, analysis and documentation designed to ensure proactive and transparent
management of its pipeline systems and facilities, and compliance with applicable standards and regulations.
Pembina's IMP's are designed to achieve enhanced
safety, reliability and longevity through the entire asset lifecycle.
Proactive integrity management activities extend
into pipeline operations with programs including right-of-way patrols and public awareness to reduce the likelihood of third party
damage, system-specific hazard evaluations and risk assessments, geotechnical programs to manage slope instability and river crossings,
training and competency management programs for staff and contractors, enhanced emergency response procedures and training exercises,
and the use of specific chemicals to reduce the likelihood of internal corrosion from impurities and bacteria in the oil.
Between 2007 and 2012, Pembina completed a
baseline geotechnical inspection program of pipelines to inventory all water crossings and slopes and to assess integrity threats
posed by these crossings and slopes. Baselines continue each year as new pipelines are constructed or acquired. In 2014, Pembina
completed a detailed Braided River Study which identifies water crossings most susceptible to lateral movement. This study allows
Pembina to proactively anticipate where this movement will occur and plan its annual mitigation, monitoring, and inspection procedures
accordingly.
In 2014, Pembina performed work on 25 stream
crossings to mitigate the impacts of stream erosion, and conducted work on 13 slopes to stabilize or monitor potential instability.
Pembina also completed 806 re-inspections of streams and 230 detailed surveys of key streams and slope areas identified in previous
years. Pembina plans to perform mitigation work on 39 stream crossings and 8 slopes in 2015.
The cornerstone of Pembina's IMP is the use
of in-line inspection ("ILI") and repair technology to measure and record both the distribution and severity of
specific features in the pipe depending on the ILI technology. This technology employs high-resolution magnetic flux leakage tools
to identify the location and severity of defects with potential to adversely affect pipeline "fitness-for-service". Through
proactive use of these sophisticated electronic tools, defects (both internal and external) with the potential to compromise pipeline
integrity are identified and repaired. Projected defect growth rates and/or historical operating knowledge are used to plan re-inspection
intervals. Pembina's re-inspection frequency and intervals are typically selected so that remaining defects are re-assessed and
repaired before they have a material effect on pipe integrity.
Pembina has employed in-line inspection since
the early 1970s, progressing to newer, high resolution ILI technology in the late 1990s and continuing to implement improvements
to technology as they become available. As part of Pembina's ongoing IMP, 85 pipeline segments (1,400 km) were inspected in 2014.
The majority of the segments inspected in 2014 were inspected with a geometry tool which measures pipeline deformations which could
be related to original construction damage, geotechnical movement and/or third party hits. Pembina plans to inspect 66 pipeline
segments (1,900 km) in 2015.
For those line segments with higher susceptibility
to crack failures, Pembina also employs specialized ultrasonic ILI crack detection technology. Pembina has completed crack detection
inspections on the majority of its mainline pipelines including: the Western Pipeline, portions of the Peace Pipeline (LaGlace
to Fox Creek), the 12" and 20" lines from Fox Creek to Edmonton, the 16" crude line from Judy Creek to Edmonton,
the 16" NGL line from Judy Creek to Edmonton, the 16" Valleyview to Fox Creek, the 10" Swan Hills to Namao line,
the 16" Redwater to Pipeline Alley line, the 16" Judy Creek to Whitecourt pump station line and the 22" Horizon
Pipeline. In 2014, Pembina ran ultrasonic tools on 8 pipeline segments, which were all re-inspections with the exception of 12"
Western (North), 12" LaGlace to Fox Creek and the 8" Simonette to Fox Creek segment which were all circumferential crack
tool inspections. Data from these inspections is analyzed by Pembina and third party technical experts, in conjunction with pipeline
pressure data, to design appropriate mitigation, repair and re-assessment programs.
In 2014, Pembina completed inspections on 580
pressure vessels, 50 storage tanks, and 5 storage tubes to achieve compliance. For each inspection, repairs are conducted as required
to ensure compliance to applicable codes and standards. In addition, in 2014, Pembina's pressure equipment integrity management
programs received two internal audits and an Alberta Boilers and Safety Association program renewal audit, which identified only
minor findings which have since been addressed. In 2015, Pembina is scheduled to inspect 145 pressure vessels, 16 storage tanks,
and 10 storage tubes, and complete two internal audits of Pembina's pressure equipment integrity management programs.
Environmental Matters
Operation of Pembina's pipelines and other
assets are subject to environmental controls in the form of approvals and compliance with applicable federal, provincial, and local
laws and regulations. Such laws and regulations govern, among other things, operating and maintenance standards, emissions and
waste discharge and disposal. Management believes that Pembina's facilities and operations meet or exceed those requirements. Pembina
participates in the following applicable regulated emission reporting programs: Canadian Greenhouse Gas Emissions Reporting
Program, Alberta Specified Gas Reporting Program, and the Canadian National Pollutant Release Inventory Reporting Program.
To confirm regulatory compliance and conformance
with Pembina's internal environmental standards, Pembina has in place a planned environmental audit program. As part of this program,
regularly scheduled third party environmental compliance audits are conducted at various facilities within a selected business
unit each year. The program is designed such that each major business unit is audited at least once every five years.
In addition, Pembina has an incident review
panel (the "IRP"), which has been in place since the first quarter 2010, that meets monthly and consists of operational,
safety and environmental leaders as well as business Vice Presidents, the President and Chief Executive Officer and other members
of the executive team. The IRP is focused on analyzing and understanding incident root causes, determining and completing resulting
action plans to eliminate re-occurrence and more importantly ensuring that these learnings are fully communicated and implemented
on a corporate-wide basis.
Environmental Incidents
Pembina's focus on integrity management and
safe operations continues to result in low incident frequency and minimal environmental impact.
Pembina spent approximately $4.4 million on
pre-existing spill sites in 2014 and approximately $0.5 million on yearly environmental programs including monitoring and compliance
audits.
In addition to the environmental expenses associated
with its operations, Pembina also invests in environmental assessment, planning, permitting and post-construction monitoring associated
with capital projects.
Provisions
A provision is recognized if, as a result of
a past event, Pembina has a present legal or constructive obligation that can be estimated reliably, and it is probable that an
outflow of economic benefits will be required to settle the obligation. Provisions are determined by discounting the expected future
cash flows at a pre-tax rate that reflects current market assessments of the time value of money and the risks specific to the
liability. Provisions are re-measured at each reporting date based on the best estimate of the settlement amount. The unwinding
of the discount rate is recognized as a finance cost.
Decommissioning provision
Pembina's activities give rise to dismantling,
decommissioning and site disturbance remediation activities. A provision is made for the estimated cost of site restoration and
capitalized in the relevant asset category.
Decommissioning obligations are measured at
the present value, based on a risk-free rate, of management's best estimate of the expenditures required to settle the obligation
at the balance sheet date. Subsequent to the initial measurement, the obligation is adjusted at the end of each period to reflect
the passage of time, changes in the risk-free rate and changes in the estimated future cash flows underlying the obligation. The
increase in the provision due to the passage of time is recognized as finance costs whereas increases/decreases due to changes
in the estimated future cash flows or risk-free rate are added to or deducted from the cost of the related asset.
For more information with respect to Pembina's
estimated net present value of decommissioning obligations, see Note 15 to Pembina's audited consolidated financial statements
for the year ended December 31, 2014, which may be found on Pembina's profile on the SEDAR website at www.sedar.com and the EDGAR
website at www.sec.gov.
Derivative Financial Instruments
Pembina has entered into derivative financial
instruments to limit its exposure to changes in commodity prices, interest rates, cost of power, and foreign exchange rates. Hedge
accounting has not been applied to any of these instruments; however, Pembina still considers that there is an economic hedge which
limits the exposure to fluctuations in revenue and expenses.
For more information with respect to Pembina's
derivative financial instruments and financial risk management program, see Note 24 to Pembina's audited consolidated financial
statements for the year ended December 31, 2014, which note is incorporated by reference herein. Electronic copies of this document
can be found on Pembina's company profile on the SEDAR website at www.sedar.com, in Pembina's annual report on Form 40-F filed
on the EDGAR website at www.sec.gov and on Pembina's website at www.pembina.com.
Pipeline Rights-of-Way and Land Tenure
Pembina's real property interests fall into
two basic categories of ownership: (i) a number of locations, including many pumping stations and terminal and storage facilities,
which are owned in fee simple; and (ii) the majority of locations which are covered by leases, easements, rights-of-way, permits
or licences from landowners or governmental authorities permitting the use of such land for the construction and operation of a
pipeline. Pembina believes that the operator of each of its pipeline assets has sufficient property interests to permit the operation
of such assets.
Indemnification and Insurance
Pembina maintains insurance to provide coverage
in relation to the ownership and operation of its pipeline assets, gas services assets, as well as its midstream assets. Insurance
coverage for Pembina's assets currently includes: (i) property insurance coverage, providing coverage on the property and equipment
that is above-ground and pipelines at river crossings, with recovery based upon replacement costs, and, where necessary, business
interruption coverage for loss of income arising from specific property damage; and (ii) comprehensive general liability coverage,
providing coverage for actions by third parties. The latter coverage includes Pembina's sudden and accidental pollution coverage,
which specifically insures against certain claims for damage from leaks or spills.
In addition, Pembina maintains director and
officer liability coverage consistent with industry practice.
Pembina believes that it has procured such
insurance coverage as would be maintained by a prudent owner and operator of the type of assets owned and operated by Pembina.
This insurance coverage is subject to limits and exclusions or limitations on coverage that Pembina considers reasonable given
the cost of procuring insurance and current operating conditions. However, there can be no assurance that insurance coverage will
be adequate in any particular situation or that insurers will be able to fulfill their obligations should a claim be made. Further,
there can be no assurance that such insurance coverage will be available in the future on commercially reasonable terms or at commercially
reasonable rates. Pembina also ensures that appropriate coverage is in place during the construction of new infrastructure. Specifically,
Pembina insures against general liability, property insurance, and business interruption.
Employees
As at December 31, 2014, Pembina employed 1,111
personnel, of which 593 were engaged in the performance of field operations and superintendence activities, and 518 were engaged
in the performance of facilities engineering, systems, management, finance, accounting, administration, human resources, information
services, drafting, business development and safety and environmental service activities. Of the above field operation employees,
18 are unionized. Pembina's workforce is relatively stable with limited turnover and employees are financially encouraged to remain
in Pembina's employment through options to purchase Common Shares, long-term incentive programs and pension plans, all of which
vest over time.
Corporate Social Responsibility
Pembina is committed to maintaining a high
standard of corporate governance and ethical practices, both within the corporate boardroom and throughout its operations. Pembina's
corporate governance practices are designed with a view to:
| · | Enhancing and preserving value; |
| · | Ensuring it meets its obligations to all regulatory bodies, business partners, customers, stakeholders,
employees and Shareholders; and |
| · | Operating in a safe, reliable and environmentally responsible way. |
Code of Ethics
The Board of Directors has adopted a Code of
Ethics which applies to all directors, officers, employees and certain contractors of Pembina. The Code of Ethics is available
at Pembina's website at www.pembina.com.
In support of the Code of Ethics, Pembina has
adopted various business conduct policies covering matters including, but not limited to, ethics, disclosure, insider trading and
conflicts of interest, and has adopted a number of specific procedures and guidelines to facilitate compliance with the Code of
Ethics and the various policies.
The policies include the:
| · | Health, Safety and Environment Policy |
| · | Respectful Workplace Policy |
| · | Aboriginal Relations Policy |
| · | Corporate Security Management Policy |
| · | Counterparty Risk Management Policy |
| · | Enterprise Risk Management Policy |
Health, Safety and Environment ("HSE")
Policy
HSE are top priorities in all of Pembina's
operations and business activities. Pembina is committed to being an industry leader in conducting its business so that it meets
or exceeds all applicable laws and regulations and to protecting the health and safety of workers, the public and safeguarding
the environment affected by its activities. Pembina is also committed to improving its HSE performance. These areas are of paramount
importance to management, employees and contractors at the Company. Pembina believes that excellence in HSE practices is essential
to the well-being of the Company.
The HSE Committee of Pembina's Board of Directors
monitors compliance with the HSE Policy through regular reporting. Pembina's integrated HSE management system is modeled after
the International Organization for Standardization standard for environmental management systems (ISO 14001) and the Occupational
Health and Safety Assessment Series (OHSAS 18001) for occupational health and safety. Pembina's HSE management system conforms
to external industry consensus standards and voluntary regulatory programs and complies with applicable legislated requirements
and various other internal management systems. Management is informed regularly of all important and/or significant HSE operational
issues and initiatives through formal reporting and incident management processes, including tracking all "close calls."
The HSE management system is subject to ongoing internal and external review to ensure that it remains effective as circumstances
change.
Respectful Workplace Policy
Pembina is committed to providing a workplace
that is pleasant, healthy, comfortable, and free from intimidation, hostility or other offenses which might interfere with work
performance. Employees are expected to treat each other with mutual respect, fairness and dignity. Discrimination or harassment
of any sort will not be tolerated. The purpose of the policy is to create a respectful workplace through the prevention and quick
resolution of harassment and/or discrimination.
Aboriginal Relations Policy
By striving for positive and mutually-beneficial
relationships with Aboriginal leadership and communities, Pembina employees, consultants and contractors will help build continued
success for Pembina's existing and expanding systems and other businesses. Pembina desires to enter into lasting and mutually-beneficial
relationships with all Aboriginal peoples affected by its operations.
Whistleblower Policy
Pembina is committed to high standards of professional
and ethical conduct in all activities. Pembina's reputation for honesty and integrity among its stakeholders is key to the success
of its business. The transparency, honesty, integrity and accountability of Pembina's financial, administrative and management
practices are vital. These high standards guide the decisions of the Board of Directors and are relied upon by Pembina's stakeholders
and the financial markets.
For these reasons, it is critical to maintain
a workplace where concerns regarding questionable business practices can be raised without fear of any discrimination, retaliation
or harassment. This reporting mechanism invites employees to act responsibly to uphold the reputation of Pembina and maintain public
confidence. Encouraging a culture of openness and ethical leadership from management will also help this process. This policy is
intended to encourage and enable stakeholders to raise serious concerns within Pembina rather than overlooking a problem or seeking
a resolution of the problem outside Pembina.
Corporate Security Management Policy
Pembina is committed to protecting the safety
of its workers, the public, and to safeguarding Pembina's facilities and information. These areas are of paramount importance to
management, employees and contractors at the Company. Pembina believes that excellence in security management is essential to the
well-being of the Company. As such, Pembina is committed to identifying security risks and establishing appropriate programs and
procedures to reduce these risks to an acceptable level, and to testing these programs and procedures to assess their effectiveness
on a regular basis.
Market Risk Policy
Pembina recognizes that effective management
of market risk is a critical success factor in managing organization and shareholder value. Pembina is committed to implementing
and maintaining an approach for the management and reporting of key market risks. The policy is intended to define and specify
the controls and procedures associated with Pembina's market risk.
Counterparty Risk Management Policy
The counterparty risk management policy governs
the responsibilities and accountabilities for measuring, identifying, validating, monitoring and reporting counterparty exposures
and where applicable, the mitigation of counterparty risk as it relates to Pembina's business unit activities. It also outlines
the authorities for the receipt and issuance of financial assurances, the establishment of Board designated counterparty exposure
limits by debt rating and a counterparty exposure limit sign-off authority matrix.
Enterprise Risk Management Policy
Pembina is committed to raising awareness of
the need for enterprise-wide risk management and to establishing a systematic approach for the management and reporting of key
business risks. The policy is intended to define enterprise risk management principles and specify expectations associated with
Pembina's risk management activities and governance. Enterprise risk management consists of risk management practices and procedures
applied across the Company to identify, measure, assess, respond to, monitor and report on principal risks that affect the achievement
of business objectives.
Corporate Governance
Pembina's Board and management are committed
to high standards of ethical conduct and corporate governance.
Pembina is a public company listed on the TSX
and the NYSE, and it recognizes and respects rules and regulations in both Canada and the U.S.
Pembina's corporate governance practices comply
with the Canadian governance guidelines, which include the governance rules of the Canadian Securities Administrators (''CSA''):
| · | National Instrument 52-110 - Audit Committees (Canadian audit committee rules); |
| · | National Policy 58-201 - Corporate Governance Guidelines; and |
| · | National Instrument 58-101 - Disclosure of Corporate Governance Practices. |
Pembina also complies with the governance listing
standards of the NYSE and the governance rules of the SEC that apply to foreign private issuers.
Pembina's governance practices comply with
the NYSE standards for U.S. companies in all significant respects, except as summarized on Pembina's website at www.pembina.com.
As a non-U.S. company, Pembina is not required to comply with most of the governance listing standards of the NYSE. As a foreign
private issuer, however, Pembina must disclose how its governance practices differ from those followed by U.S. companies that are
subject to the NYSE standards.
Pembina benchmarks its policies and procedures
against major North American companies to assess its standards, and it adopts best practices as appropriate. Some of its best practices
are derived from the NYSE rules and comply with applicable rules adopted by the SEC to meet the requirements of the Sarbanes-Oxley
Act of 2002 and the Dodd-Frank Wall Street Reform and Consumer Protection Act.
Further information about Pembina's corporate
governance can be found on Pembina's website at www.pembina.com.
CANADIAN OIL AND GAS INDUSTRY
General
The
discussion below provides a high level overview of the crude and heavy oil industry, the NGL industry and midstream industry, with
a particular focus on western Canada given that a signification portion of Pembina's operations are situated in Alberta. Pembina
also has operations in eastern Canada and the U.S. within its Midstream business. Volumes which feed into those assets originate
in western Canada before being transported to eastern markets via a third party pipeline, as discussed below under "Product
Transportation: Export Liquids Pipeline Systems". Further, with the acquisition of the Vantage Pipeline, Pembina now has
an operating footprint in the North Dakota and Saskatchewan Bakken resource play. The Vantage Pipeline imports ethane from these
areas into western Canada, as discussed below under "Product Transportation: Feeder Pipeline Systems".
Western Canada is the major source of conventional
crude oil, SCO, natural gas, bitumen and related products (including NGL and condensate) in Canada. Domestic crude oil and natural
gas production in the west comes primarily from Alberta with lesser amounts from British Columbia, Saskatchewan, Manitoba and the
Northwest Territories. SCO comes from the oil sands developments near Fort McMurray, Alberta. Efficient, low cost, and safe transportation
by pipeline, rail and truck from producing fields to refineries, processing plants and domestic and export markets is essential
to the Canadian oil and gas industry.
Canadian Crude and Heavy Oil Overview
While western Canada has one of the world's
largest crude oil reserves, the WCSB was once considered to be a declining resource. However, over the past number of years, the
crude oil industry in Alberta and western Canada in general has resurged due to the implementation of improved drilling technologies
which have enabled increased recoveries and have enhanced economics. These technologies (for example, multi-stage hydraulic fracturing)
have allowed producers to access tighter areas of conventional reserves as well as shales, which were previously considered to
be uneconomical. Through this development, crude oil produced from the WCSB has significantly increased.
Alberta is also abundant in oil sands –
a natural mixture of sand, water, clay and a type of natural heavy oil called "bitumen." Once the bitumen is recovered
and processed to separate it from the sand and water and upgraded, SCO is produced. Oil sands may be extracted by surface mining
where it is moved by trucks to a cleaning facility or by in–situ processes which use steam, solvents or thermal energy to
allow the bitumen to be pumped to the surface. Because bitumen is so viscous, it requires dilution with lighter hydrocarbons, such
as condensate, to make it transportable by pipeline.
Condensate is the "heaviest" gas
liquid. As producers increase their production of oil sands and heavy oil, there is a growing demand for condensate. With assets
spanning across the crude oil, condensate and NGL value chains, Pembina is uniquely positioned to provide customers with access
to condensate via pipeline or rail.
Pipelines continue to be the most economical
and dominant mode of transporting large amounts of crude oil, condensate, and heavy oil; however, given the extensive rail infrastructure
network across North America and the lack of sufficient export pipeline capacity, transporting hydrocarbon products by rail has
gained momentum.
Product Transportation: Feeder Pipeline
Systems
Feeder pipeline systems gather petroleum products
from producing fields and facilities for transport to regional centres for storage, fractionation, refining and connection to larger
pipelines. From these centres, petroleum products are further transported by export pipeline or rail systems either to domestic
markets in western or eastern Canada or to markets in the northern United States for end–use, or used as feedstock in refineries
or the petrochemical industry. The major operational centre for the Canadian oil and natural gas industry is the Edmonton/Fort
Saskatchewan area of Alberta, which is the largest crude oil refining centre in western Canada and a major fractionation and market
hub for NGL and related products. In addition, the Edmonton/Fort Saskatchewan area is the hub of the Alberta feeder pipeline network
and the starting point of many large Canadian export pipelines.
All of Pembina's pipelines are feeder pipelines
or gathering systems. The conventional pipelines collectively transported approximately 575 mbpd of crude oil, condensate and NGL
products in 2014. The conventional pipelines transport the majority of its products to the Edmonton/Fort Saskatchewan, Alberta
area, while a smaller amount is delivered to Kamloops, British Columbia and to the Alberta Ethane Gathering System via the Vantage
Pipeline from the North Dakota Bakken play. Pembina's oil sands and heavy oil pipelines had a combined contracted capacity of 880
mbpd in 2014. These pipelines primarily transport products from established production fields in their respective service areas,
the Syncrude Project or the Horizon Project, into the refining and export pipeline centres at Edmonton. The Cheecham Lateral transports
SCO from a common pump station on the Syncrude Pipeline and Horizon Pipeline to a terminalling facility located near Cheecham,
Alberta, where it is then used as diluent for oil sands projects in the area. The Nipisi Pipeline and Mitsue Pipeline provide diluted
heavy oil and diluent transportation for operators in the Pelican Lake and Peace River heavy oil regions of Alberta.
Conventional feeder pipelines and gathering
systems generally experience lower volumes during the spring months as a result of reduced drilling primarily due to weight restrictions
on roads, producers conducting maintenance on their batteries and gas plant turnarounds. The magnitude and duration of road weight
restrictions are dependent upon spring weather conditions. Many battery operators also perform maintenance work on production facilities
during the spring months. Road restrictions and battery maintenance can also impact gathering pipeline receipts during the fall
months, although the impact on throughput is generally less pronounced than during the spring months.
Product Transportation: Export Liquids
Pipeline Systems
The export liquids pipelines originating in
the Edmonton area are the TransMountain Pipeline and the Enbridge Pipeline. Crude oil and refined products delivered to domestic
and export markets on the west coast are transported through the TransMountain Pipeline. Crude oil and refined products delivered
to eastern Canada and the northern United States are transported through the Enbridge Pipeline. NGL delivered to eastern Canadian
and export markets are transported through the Enbridge Pipeline. The TCPL Keystone Pipeline and Express Pipeline also export crude
oil from Hardisty, Alberta. However, none of Pembina's systems are directly connected to Hardisty.
NGL Overview
The NGL industry involves the production, storage,
transportation and marketing of products that are extracted from natural gas prior to its sale to end-use customers. The profitability
of the industry is based on the products extracted being of greater economic value as separate commodities (net of the costs of
extraction) than as components of natural gas.
Natural gas is a mixture of various hydrocarbon
components, the most abundant of which is methane. The higher value hydrocarbons, which include ethane (C2), propane
(C3), butane (C4) and condensate (C5+), are generally in gaseous form at the pressures and temperatures
under which natural gas is gathered and transported. NGL extraction facilities recover certain higher value hydrocarbons, such
as ethane, propane, butane and condensate, from natural gas for sale in a liquid form. The significant majority of NGL supply in
western Canada is derived from natural gas processing, with the remainder derived from the refining of crude oil.
The NGL value chain begins with the gathering
of gas that is produced. The gas then gets processed through field processing plants, mainline extraction facilities and fractionation
facilities in order to remove high value NGL, as well as water, sulphur and other impurities. The value chain culminates with the
transportation and eventual sale of NGL to the final customer.
Condensate is produced naturally at the well-head
when natural gas is brought to the surface at a gas well. Most condensate is typically separated from natural gas at the field
gas plant. It is then either trucked to a connection point on a pipeline, or the natural gas plant may be connected directly into
a gathering pipeline system for onward delivery to market.
NGL Extraction
NGL is recovered at three distinct types of
facilities: natural gas field plants, natural gas mainline straddle plants and oil refineries. Field plants process raw natural
gas, which is produced from wells in the immediate vicinity, to remove impurities such as water, sulphur and carbon dioxide prior
to the delivery of natural gas to the major natural gas pipeline systems. Field plants also remove almost all condensate and as
much as 65 percent of propane and 80 percent of butane in order to meet pipeline specifications, leaving ethane and unrecovered
NGL in the sales gas. Most western Canadian field plants do not extract ethane but leave it in the natural gas. Once processed,
the sales gas is then compressed and delivered to one of the major gas market pipeline systems including ATCO Gas, TransCanada
Pipelines Ltd., Alliance Pipeline Limited Partnership, Nova Gas Transmission Ltd. and Spectra/Westcoast. In the Province of Alberta,
any residual NGL and ethane in the natural gas is extracted at mainline straddle plants prior to export. Pembina has ownership
interests in four of the six mainline Empress straddle plants on the Nova Gas Transmission system and the Younger Extraction plant
on the Spectra system.
NGL extraction produces a mixed hydrocarbon
product (either ethane-plus or propane-plus), which must be further processed in subsequent steps to separate out the individual
products. At most field facilities, only sufficient NGL to make the residual gas marketable is extracted; however, with the addition
of enhanced processing facilities such as Pembina's Musreau Deep Cut Facility (an example of a field straddle plant) and Pembina's
Empress plant (an example of a mainline straddle plant) further NGL extraction is possible to ensure the maximum amount of NGL
is recovered. NGL products have historically been priced relative to oil, so this additional level of recovery is dependent on
the relative value between oil and natural gas. As the relative price of oil versus natural gas increases, the economic impetus
for this activity is also increased.
NGL Fractionation
NGL mix extracted at field plants and straddle
plants is transported to fractionation facilities, which enhance its value by separating the mix into its components: ethane, propane,
butane and pentanes-plus. Due to size, storage and transportation limitations, fractionation generally does not occur at field
plants, but rather at larger, well connected centralized locations. NGL mix is moved by truck or pipeline to fractionation facilities.
Once fractionated, the products are stored and transported to end markets by pipeline, truck or rail.
NGL Transportation
The efficient movement of NGL products requires
significant infrastructure, including transportation assets (pipelines, trucks, rail cars), storage facilities, and terminals (rail
and truck). The most efficient and the lowest-cost means for moving NGL products to markets is by pipeline. The Canadian energy
sector has an extensive pipeline network for the transportation of natural gas to field plants and extraction facilities, and NGL
to fractionation facilities, petrochemical complexes, underground storage facilities and the consuming customer. Truck and rail
account for a significant amount of the NGL transported, with pipelines serving as the main mode of transport.
NGL Storage
Storage assets offer a number of key strategic
advantages, which include: (i) providing the necessary operational buffer between production of NGL (which varies daily depending
on gas flows and composition) and their consumption (which can vary from day-to-day and season-to-season depending on market needs);
(ii) allowing NGL sellers to store inventory to accommodate outages in NGL fractionation plants; and (iii) exploiting seasonal
price differentials that may develop over the course of a year (particularly for propane and butane).
NGL Marketing
The North American markets for NGL are largely
continental in nature, though exports have been increasing, with end uses varying substantially by product from heating and transportation
fuels to petrochemical and crude oil refining feed stocks. Ethane is used as feedstock for the petrochemical industry. Propane
is the most versatile of the NGL products with uses such as home and commercial heating, crop drying, cooking, motor fuel and petrochemical
feedstock. Butane is used primarily in gasoline blending, either directly or in the production of iso-octane and as a diluent for
heavy oil. Pentanes-plus is used primarily as a diluent to blend with heavy crudes to decrease viscosity and density, allowing
them to be transported in pipelines. In addition, pentanes-plus are used as a refinery feedstock in the production of gasoline.
Midstream Services for Crude Oil, SCO
& NGL
Crude oil, SCO and NGL produced in Canada are
transported to market through extensive gathering and transportation systems – feeder pipeline systems and export pipeline
systems – discussed above.
Growth in crude oil midstream opportunities
is largely focused on receipt and delivery terminals, storage and other hub services. Crude oil production ends up being consumed
in refineries. Refineries are widely distributed geographically and can be located anywhere along the transportation chain, from
the production basin hub locations to mid-point junctions on transmission networks to tidewater where foreign production is able
to access North American markets via marine transport. For locations directly connected to Pembina's pipelines, there is a service
requirement to manage supply with demand, balancing between the pipeline and the customer.
On the receipt side, Pembina's truck terminals
are a means for oil, condensate and NGL production, which is not pipeline connected, to secure access to transportation to market.
With the growth in multi-stage fractionation and production techniques, there is also growing demand to treat emulsion, oil-water
mixtures and waste water, prior to production being ready for sale and accepted into a pipeline. The treating of emulsion and disposal
of associated water at full-service truck terminal facilities is a business expansion opportunity for Pembina.
Where pipelines converge, there is a requirement
to manage the product flow between the systems. Historically this has been buffered through tankage downstream of Pembina's operations.
There is an internal demand for hub storage which will not only buffer flows for downstream deliveries, but also smooth operation
of Pembina's complex batched conventional pipeline network and its oil sands pipelines. As a further service category, with the
growth in demand for diluents for heavy oil transportation, there is a new requirement to manage diluents prior to injection into
the various diluent delivery pipelines. This demand includes accessing the greatest variety of diluents, meeting diluent quality
specifications and storage. To this end, in 2014, Pembina announced plans to proceed with the Canadian Diluent Hub (described in
"General Developments of Pembina: Developments in 2014"), which is expected to provide interconnectivity via pipeline
and rail to downstream markets and enable Pembina to offer upstream and downstream customers access to merchant storage and other
complementary midstream services, and become a diluent platform for servicing the oil sands.
DESCRIPTION OF THE CAPITAL STRUCTURE OF
PEMBINA
The authorized capital of Pembina consists
of an unlimited number of Common Shares, a number of Class A Preferred Shares, issuable in series, not to exceed twenty percent
of the number of issued and outstanding Common Shares at the time of issuance of any Class A Preferred Shares, and an unlimited
number of Class B Preferred Shares (the "Internal Preferred Shares"). As of December 31, 2014, there were approximately
338 million Common Shares outstanding, approximately 9 million Common Shares issuable pursuant to outstanding options under the
Option Plan, approximately 8 million Common Shares reserved for issuance pursuant to the Series C Convertible Debentures, less
than 1 million Common Shares reserved for issuance pursuant to the Series E Convertible Debentures, approximately 5 million Common
Shares reserved for issuance pursuant to the Series F Convertible Debentures, 10 million Series 1 Class A Preferred Shares outstanding,
6 million Series 3 Class A Preferred Shares outstanding, 10 million Series 5 Class A Preferred Shares outstanding, 10 million Series
7 Class A Preferred Shares outstanding and 101.4 million Internal Preferred Shares outstanding (all of which Internal Preferred
Shares are owned by Pembina's wholly-owned subsidiary, Alberta Oil Sands Pipeline Ltd.).
The following is a summary of the rights, privileges,
restrictions and conditions attaching to the Common Shares, the Series 1, Series 3, Series 5, and Series 7 Class A Preferred Shares,
and the Internal Preferred Shares.
Common Shares
Holders of Common Shares are entitled to receive
notice of and to attend all meetings of Shareholders and to one vote at such meetings for each Common Share held. The holders of
the Common Shares are, at the discretion of the Board of Directors and subject to applicable legal restrictions, entitled to receive
any dividends declared by the Board of Directors on the Common Shares, and are entitled to share in the remaining property of Pembina
upon liquidation, dissolution or winding-up, subject to the rights of the Class A Preferred Shares and the Internal Preferred Shares,
described below.
Pembina has a shareholder rights plan (the
"Plan") that was adopted to ensure, to the extent possible, that all Shareholders are treated fairly in connection
with any take-over bid for Pembina and to ensure that the Board is provided with sufficient time to evaluate unsolicited take-over
bids and to explore and develop alternatives to maximize Shareholder value. The Plan creates a right that attaches to each present
and subsequently issued Common Share. Until the Separation Time (as defined in the Plan), which typically occurs at the time of
an unsolicited take-over bid, whereby a person acquires or attempts to acquire 20 percent or more of the Common Shares, the rights
are not separable from the Common Shares, are not exercisable and no separate rights certificates are issued. Each right entitles
the holder, other than the 20 percent acquirer, from and after the separation time and before certain expiration times, to acquire
one Common Share at a substantial discount to the market price at the time of exercise. The Board of Directors may waive the application
of the Plan in certain circumstances. The Plan was reconfirmed at Pembina's 2013 meeting of Shareholders and must be reconfirmed
at every third annual meeting thereafter. A copy of the agreement relating to the Plan has been filed on Pembina's SEDAR and EDGAR
profiles on May 13, 2013 and May 14, 2013, respectively.
Class A Preferred Shares
Subject to certain limitations, the Board may,
from time to time, issue Class A Preferred Shares in one or more series and determine for any such series, its designation, number
of shares and respective rights, privileges, restrictions and conditions. The Class A Preferred Shares as a class have, among others,
the provisions described below.
Each series of Class A Preferred Shares shall
rank on parity with every other series of Class A Preferred Shares, and shall have priority over the Common Shares, the Internal
Preferred Shares and any other class of shares ranking junior to the Class A Preferred Shares with respect to redemption, the payment
of dividends, the return of capital and the distribution of assets in the event of the liquidation, dissolution or winding-up of
Pembina. The Class A Preferred Shares of any series may also be given such preferences, not inconsistent with the provisions thereof,
over the Common Shares, the Internal Preferred Shares and over any other class of shares ranking junior to the Class A Preferred
Shares, as may be determined by the Board.
In the event of the liquidation, dissolution
or winding-up of Pembina, if any cumulative dividends or amounts payable on a return of capital in respect of a series of Class
A Preferred Shares are not paid in full, the Class A Preferred Shares of all series shall participate rateably in: (a) the amounts
that would be payable on such shares if all such dividends were declared at or prior to such time and paid in full; and (b) the
amounts that would be payable in respect of the return of capital as if all such amounts were paid in full; provided that if there
are insufficient assets to satisfy all such claims, the claims of the holders of the Class A Preferred Shares with respect to repayment
of capital shall first be paid and satisfied and any assets remaining shall be applied towards the payment and satisfaction of
claims in respect of dividends. After payment to the holders of any series of Class A Preferred Shares of the amount so payable,
the holders of such series of Class A Preferred Shares shall not be entitled to share in any further distribution of the property
or assets of Pembina in the event of the liquidation, dissolution or winding-up of Pembina.
Holders of any series of Class A Preferred
Shares will not be entitled (except as otherwise provided by law and except for meetings of the holders of Class A Preferred Shares
or a series thereof) to receive notice of, attend at, or vote at any meeting of shareholders of Pembina, unless the Board shall
determine otherwise in the terms of a particular series of Class A Preferred Shares, in which case voting rights shall only be
provided in circumstances where Pembina shall have failed to pay a certain number of dividends on such series of Class A Preferred
Shares, which determination and number of dividends and any other terms in respect of such voting rights, shall be determined by
the Board and set out in the designations, rights, privileges, restrictions and conditions of such series of Class A Preferred
Shares. Other than as set out below, the material characteristics of each series of Class A Preferred Shares are substantially
the same.
Series 1 Class A Preferred Shares
The holders of Series 1 Class A Preferred Shares
are entitled to receive fixed dividends at an annual rate of $1.0625 per share, payable quarterly on the 1st day of
March, June, September and December, if, as and when declared by the Board, for the initial fixed rate period to but excluding
December 1, 2018. The dividend rate will reset on December 1, 2018 and every five years thereafter at a rate equal to the sum of
the then five-year Government of Canada bond yield plus 2.47 percent. In the event of liquidation, dissolution or winding-up of
Pembina, the holders of Series 1 Class A Preferred Shares shall be entitled to receive $25.00 per Series 1 Class A Preferred Share
plus all accrued and unpaid dividends thereon in preference over the Common Shares or any other shares ranking junior to the Series
1 Class A Preferred Shares.
The Series 1 Class A Preferred Shares are redeemable
by Pembina in whole or in part, at its option, on December 1, 2018 and on December 1 of every fifth year thereafter at a price
of $25.00 per share plus accrued and unpaid dividends. The holders of Series 1 Class A Preferred Shares have the right to convert
their shares into Series 2 Class A Preferred Shares, subject to certain conditions, on December 1, 2018 and on December 1 of every
fifth year thereafter. The holders of Series 2 Class A Preferred Shares will be entitled to receive quarterly floating rate cumulative
dividends, as and when declared by the Board, at a rate equal to the sum of the then 90-day Government of Canada treasury bill
rate plus 2.47 percent, and will have the right to convert their shares into Series 1 Class A Preferred Shares, subject to certain
conditions, on December 1, 2023 and on December 1 of every fifth year thereafter. The Series 2 Class A Preferred Shares are redeemable
by Pembina in whole or in part, at its option, on any date after December 1, 2018, by the payment of an amount of cash for each
share to be redeemed equal to (i) $25.00 in the case of any redemptions on December 1, 2023 and on December 1 in every fifth year
thereafter, or (ii) $25.50 in the case of redemption on any other date after December 1, 2018, in each case plus all accrued and
unpaid dividends thereon.
Series 3 Class A Preferred Shares
The holders of Series 3 Class A Preferred Shares
are entitled to receive fixed dividends at an annual rate of $1.1750 per share, payable quarterly on the 1st day of
March, June, September and December, if, as and when declared by the Board, for the initial fixed rate period to but excluding
March 1, 2019. The dividend rate will reset on March 1, 2019 and every five years thereafter at a rate equal to the sum of the
then five-year Government of Canada bond yield plus 2.60 percent. In the event of liquidation, dissolution or winding-up of Pembina,
the holders of Series 3 Class A Preferred Shares shall be entitled to receive $25.00 per Series 3 Class A Preferred Share plus
all accrued and unpaid dividends thereon in preference over the Common Shares or any other shares ranking junior to the Series
3 Class A Preferred Shares.
The Series 3 Class A Preferred Shares are redeemable
by Pembina in whole or in part, at its option, on March 1, 2019 and on March 1 of every fifth year thereafter at a price of $25.00
per share plus accrued and unpaid dividends. The holders of Series 3 Class A Preferred Shares have the right to convert their shares
into Series 4 Class A Preferred Shares, subject to certain conditions, on March 1, 2019 and on March 1 of every fifth year thereafter.
The holders of Series 4 Class A Preferred Shares will be entitled to receive quarterly floating rate cumulative dividends, as and
when declared by the Board, at a rate equal to the sum of the then 90-day Government of Canada treasury bill rate plus 2.60 percent,
and will have the right to convert their shares into Series 3 Class A Preferred Shares, subject to certain conditions, on March
1, 2024 and on March 1 of every fifth year thereafter. The Series 4 Class A Preferred Shares are redeemable by Pembina in whole
or in part, at its option, on any date after March 1, 2019, by the payment of an amount of cash for each share to be redeemed equal
to (i) $25.00 in the case of any redemptions on March 1, 2024 and on March 1 in every fifth year thereafter, or (ii) $25.50 in
the case of redemption on any other date after March 1, 2019, in each case plus all accrued and unpaid dividends thereon.
Series 5 Class A Preferred Shares
The holders of Series 5 Class A Preferred Shares
are entitled to receive fixed dividends at an annual rate of $1.25 per share, payable quarterly on the 1st day of March,
June, September and December, if, as and when declared by the Board, for the initial fixed rate period to but excluding June 1,
2019. The dividend rate will reset on June 1, 2019 and every five years thereafter at a rate equal to the sum of the then five-year
Government of Canada bond yield plus 3.00 percent. In the event of liquidation, dissolution or winding-up of Pembina, the holders
of Series 5 Class A Preferred Shares shall be entitled to receive $25.00 per Series 5 Class A Preferred Share plus all accrued
and unpaid dividends thereon in preference over the Common Shares or any other shares ranking junior to the Series 5 Class A Preferred
Shares.
The Series 5 Class A Preferred Shares are redeemable
by Pembina in whole or in part, at its option, on June 1, 2019 and on June 1 of every fifth year thereafter at a price of $25.00
per share plus accrued and unpaid dividends. The holders of Series 5 Class A Preferred Shares have the right to convert their shares
into Series 6 Class A Preferred Shares, subject to certain conditions, on June 1, 2019 and on June 1 of every fifth year thereafter.
The holders of Series 6 Class A Preferred Shares will be entitled to receive quarterly floating rate cumulative dividends, as and
when declared by the Board, at a rate equal to the sum of the then 90-day Government of Canada treasury bill rate plus 3.00 percent,
and will have the right to convert their shares into Series 5 Class A Preferred Shares, subject to certain conditions, on June
1, 2024 and on June 1 of every fifth year thereafter. The Series 6 Class A Preferred Shares are redeemable by Pembina in whole
or in part, at its option, on any date after June 1, 2024, by the payment of an amount of cash for each share to be redeemed equal
to (i) $25.00 in the case of any redemptions on June 1, 2024 and on June 1 in every fifth year thereafter, or (ii) $25.50 in the
case of redemption on any other date after June 1, 2019, in each case plus all accrued and unpaid dividends thereon.
Series 7 Class A Preferred Shares
The holders of Series 7 Class A Preferred Shares
are entitled to receive fixed dividends at an annual rate of $1.125 per share, payable quarterly on the 1st day of March,
June, September and December, if, as and when declared by the Board, for the initial fixed rate period to but excluding December
1, 2019. The dividend rate will reset on December 1, 2019 and every five years thereafter at a rate equal to the sum of the then
five-year Government of Canada bond yield plus 2.94 percent. In the event of liquidation, dissolution or winding-up of Pembina,
the holders of Series 7 Class A Preferred Shares shall be entitled to receive $25.00 per Series 7 Class A Preferred Share plus
all accrued and unpaid dividends thereon in preference over the Common Shares or any other shares ranking junior to the Series
7 Class A Preferred Shares.
The Series 7 Class A Preferred Shares are redeemable
by Pembina in whole or in part, at its option, on December 1, 2019 and on December 1 of every fifth year thereafter at a price
of $25.00 per share plus accrued and unpaid dividends. The holders of Series 7 Class A Preferred Shares have the right to convert
their shares into Series 8 Class A Preferred Shares, subject to certain conditions, on December 1, 2019 and on December 1 of every
fifth year thereafter. The holders of Series 8 Class A Preferred Shares will be entitled to receive quarterly floating rate cumulative
dividends, as and when declared by the Board, at a rate equal to the sum of the then 90-day Government of Canada treasury bill
rate plus 2.94 percent, and will have the right to convert their shares into Series 7 Class A Preferred Shares, subject to certain
conditions, on December 1, 2024 and on December 1 of every fifth year thereafter. The Series 8 Class A Preferred Shares are redeemable
by Pembina in whole or in part, at its option, on any date after December 1, 2019, by the payment of an amount of cash for each
share to be redeemed equal to (i) $25.00 in the case of any redemptions on any date after December 1, 2024 and on December 1 in
every fifth year thereafter, or (ii) $25.50 in the case of redemption on any other date after December 1, 2019, in each case plus
all accrued and unpaid dividends thereon.
Internal Preferred Shares
Holders of Internal Preferred Shares shall
not be entitled to receive notice of, to attend or to vote at any meeting of the Shareholders, except as required by law. The Internal
Preferred Shares are retractable and redeemable at the option of the holder thereof and Pembina, respectively. The price or consideration
payable at which each Internal Preferred Share shall be retracted or redeemed (the "Redemption Amount") shall
be the fair market value of the consideration received thereof as determined by the Board of Directors at the time of issuance
of the Internal Preferred Shares, as adjusted from time to time pursuant to the terms of the Internal Preferred Shares.
If at any time a holder of Internal Preferred
Shares ceases to be, or is not, a direct or indirect wholly owned subsidiary of Pembina, Pembina, with or without knowledge of
such event, shall be deemed, without further action or notice, to have automatically redeemed all of the Internal Preferred Shares
held by such holder in exchange for the Redemption Amount.
The holders of Internal Preferred Shares shall
be entitled to receive, if and when declared by the Board of Directors, preferential non-cumulative dividends based on the Redemption
Amount applicable to such shares at the rate to be set by the Board of Directors.
Upon the liquidation, dissolution or winding-up
of Pembina, the holders of Internal Preferred Shares shall be entitled to receive for each such share, in priority to the holders
of Common Shares, the Redemption Amount per share together with all declared but unpaid dividends thereon.
Premium Dividend™ and Dividend Reinvestment
Plan
Eligible Pembina shareholders have the opportunity
to receive, by reinvesting the cash dividends declared payable by Pembina on their common shares, either (i) additional common
shares at a discounted subscription price equal to 95 percent of the Average Market Price (as defined in the DRIP), pursuant to
the "Dividend Reinvestment Component" of the DRIP, or (ii) a premium cash payment (the "Premium Dividend™")
equal to 102 percent of the amount of reinvested dividends, pursuant to the "Premium Dividend™ Component" of the
DRIP. Additional information about the terms and conditions of the DRIP, including eligibility restrictions, withholding taxes
and prorating as provided for in the plan can be found at www.pembina.com. Pembina will determine, for each dividend payment date
during a period for which the DRIP is not suspended, the amount of new equity or premium cash payments, if any, that will be made
available under the DRIP on that date.
Convertible Debentures
Series C Convertible Debentures
On November 17, 2010, Pembina issued $300,000,000
aggregate principal amount of Series C Convertible Debentures at a price of $1,000 per Series C Convertible Debenture, which bear
interest at an annual rate of 5.75 percent payable semi-annually on May 31 and November 30 in each year commencing May 31, 2011
and have a maturity date of November 30, 2020. The Series C Convertible Debentures are listed on the TSX under the symbol "PPL.DB.C".
Each Series C Convertible Debenture is convertible
into Common Shares at the option of the holder at any time prior to the close of business on November 30, 2020 and the business
day immediately preceding the date specified for redemption by Pembina of the Series C Convertible Debentures, at a conversion
price of $28.55 per Common Share, subject to adjustment in certain events. Pembina may, at its option on or after November 30,
2014 and prior to November 30, 2016, elect to redeem the Series C Convertible Debentures in whole or in part, provided that the
volume weighted average trading price of the Common Shares on the TSX during the 20 consecutive trading days ending on the fifth
trading day preceding the date on which the notice of redemption is given is not less than 125 percent of the conversion price
of the Series C Convertible Debentures. On or after November 30, 2016, the Series C Convertible Debentures may be redeemed
in whole or in part at the option of Pembina at a price equal to their principal amount plus accrued and unpaid interest. Pembina
can elect to pay interest on the Series C Convertible Debentures by issuing Common Shares.
As at December 31, 2014, $236 million principal
amount of Series C Convertible Debentures were outstanding.
Series E and Series F Convertible Debentures
Pursuant to the Provident Acquisition, Pembina
assumed all of the rights and obligations of Provident related to the Series E Convertible Debentures and Series F Convertible
Debentures, which are now listed on the TSX under the symbols "PPL.DB.E" and "PPL.DB.F", respectively.
The Series E Convertible Debentures were issued
November 1, 2010 in the principal aggregate amount of $172,500,000. The Series E Convertible Debentures bear interest at an annual
rate of 5.75 percent payable semi-annually on June 30 and December 31 and have a maturity date of December 31, 2017. Each Series
E Convertible Debenture is convertible into Common Shares at the option of the holder at any time prior to the close of business
on December 31, 2017 and the business day immediately preceding the date specified for redemption by Pembina of the Series E Convertible
Debentures, at a conversion price of $24.94 per Common Share, subject to adjustment in certain events. Pembina may, at its option
on or after December 31, 2013 and prior to December 31, 2015, elect to redeem the Series E Convertible Debentures in whole or in
part, provided that the volume weighted average trading price of the Common Shares on the TSX during the 20 consecutive trading
days ending on the fifth trading day preceding the date on which the notice of redemption is given is not less than 125 percent
of the conversion price of the Series E Convertible Debentures. On or after December 31, 2015, the Series E Convertible Debentures
may be redeemed in whole or in part at the option of Pembina at a price equal to their principal amount plus accrued and unpaid
interest. Any accrued unpaid interest will be paid in cash.
As at December 31, 2014, $23 million principal
amount of Series E Convertible Debentures were outstanding.
The Series F Convertible Debentures were issued
April 29, 2011 in the principal aggregate amount of $172,500,000. The Series F Convertible Debentures bear interest at an annual
rate of 5.75 percent payable semi-annually on June 30 and December 31 and have a maturity date of December 31, 2018. Each Series
F Convertible Debenture is convertible into Common Shares at the option of the holder at any time prior to the close of business
on December 31, 2017 and the business day immediately preceding the date specified for redemption by Pembina of the Series F Convertible
Debentures, at a conversion price of $29.53 per Common Share, subject to adjustment in certain events. Pembina may, at its option
on or after December 31, 2014 and prior to December 31, 2016, elect to redeem the Series F Convertible Debentures in whole or in
part, provided that the volume weighted average trading price of the Common Shares on the TSX during the 20 consecutive trading
days ending on the fifth trading day preceding the date on which the notice of redemption is given is not less than 125 percent
of the conversion price of the Series F Convertible Debentures. On or after December 31, 2016, the Series F Convertible Debentures
may be redeemed in whole or in part at the option of Pembina at a price equal to their principal amount plus accrued and unpaid
interest. Any accrued unpaid interest will be paid in cash.
As at December 31, 2014, $150 million principal
amount of Series F Convertible Debentures were outstanding.
Pembina retains a cash conversion option on
the Series E and Series F Convertible Debentures, allowing the Company to pay cash to the converting holder of the debentures in
lieu of the holder's entitlement to Common Shares, at the option of the Company.
Credit Facilities
Pembina's credit facilities as at December
31, 2014 consisted of an unsecured $1.5 billion revolving credit facility due March 20, 2019 (the "Revolving Credit Facility")
and an unsecured operating facility of $30 million due July 2015 (the "Operating Credit Facility", and together
with the Revolving Credit Facility, the "Credit Facilities"). Borrowings on the Credit Facilities bear interest
at prime lending rates plus nil to 1.25 percent or Bankers' Acceptances rates plus 1.00 percent to 2.25 percent. Margins on the
Credit Facilities are based on the credit rating of Pembina's senior unsecured debt. There are no repayments due over the term
of the Credit Facilities. As at December 31, 2014, Pembina had $510 million drawn on bank debt and $53 million in cash, leaving
$1,073 million of cash and unutilized debt facilities. Pembina also had an additional $38 million in letters of credit issued in
a separate demand letter of credit facility. Subsequent to year end, Pembina used part of the proceeds of its issuance of $600
million senior unsecured medium-term notes on February 2, 2015 to fully repay the balance on the Credit Facilities.
Medium Term Notes
Medium Term Notes, Series 1
On March 29, 2011, Pembina issued and sold
$250 million aggregate principal amount of Medium Term Notes, Series 1. The Medium Term Notes, Series 1 have an annual coupon rate
of interest of 4.89 percent and mature on March 29, 2021. Pembina's obligations under the Medium Term Notes, Series 1 and the Medium
Term Note Indenture are guaranteed by certain subsidiaries of Pembina.
Pembina may redeem the Medium Term Notes, Series
1, either in whole at any time, or in part from time to time, upon not less than 30 and not more than 60 days prior notice, at
a price equal to the greater of (i) par and (ii) the Canada Yield Price (as defined below), plus, in either case, accrued but unpaid
interest, if any, to but excluding, the date of redemption. "Canada Yield Price" means, in effect, a price equal
to the price of the Medium Term Notes, Series 1 calculated in accordance with generally accepted financial practice in Canada to
provide a yield to maturity equal to the Government of Canada Yield (as defined below) plus 0.395 percent per annum for the Medium
Term Notes, Series 1 issued on March 29, 2011. "Government of Canada Yield" means, on any date, in effect, the
yield to maturity on such date compounded semi-annually which a non-callable Government of Canada bond would carry if issued, in
Canadian dollars in Canada, at 100 percent of its principal amount on such date with a term to maturity equal to the remaining
term to maturity of the Medium Term Notes, Series 1. The Government of Canada Yield will be the average of the yields determined
by two major Canadian investment dealers selected by Pembina. In certain circumstances following a Change of Control (as such term
is defined in the Medium Term Note Indenture) and a resulting downgrade in the ratings of the Medium Term Notes, Series 1 to below
an investment grade, Pembina will be required to make an offer to repurchase all or, at the option of any holder of Medium Term
Notes, Series 1, any part, at a purchase price payable in cash equal to 101 percent of the aggregate outstanding principal amount
thereof plus accrued and unpaid interest, if any, to the date of purchase.
Medium Term Notes, Series 2
On October 22, 2012, Pembina issued and sold
$450 million aggregate principal amount of Medium Term Notes, Series 2. The Medium Term Notes, Series 2 have an annual coupon rate
of interest of 3.77 percent and mature on October 24, 2022. Pembina's obligations under the Medium Term Notes, Series 2 and the
Medium Term Note Indenture are guaranteed by certain subsidiaries of Pembina.
Pembina may redeem the Medium Term Notes, Series
2, either in whole at any time, or in part from time to time, upon not less than 30 and not more than 60 days prior notice, at
a price equal to the greater of (i) par and (ii) the Canada Yield Price (as defined below), plus, in either case, accrued but unpaid
interest, if any, to but excluding the date of redemption. "Canada Yield Price" means, in effect, a price equal
to the price of the Medium Term Notes, Series 2 calculated in accordance with generally accepted financial practice in Canada to
provide a yield to maturity equal to the Government of Canada Yield plus 0.46 percent per annum for the Medium Term Notes, Series
2 issued October 29, 2012. "Government of Canada Yield" means, on any date, in effect, the yield to maturity on
such date compounded semi-annually which a non-callable Government of Canada bond would carry if issued, in Canadian dollars in
Canada, at 100 percent of its principal amount on such date with a term to maturity equal to the remaining term to maturity of
the Medium Term Notes, Series 2. The Government of Canada Yield will be the average of the yields determined by two major Canadian
investment dealers selected by Pembina. In certain circumstances following a Change of Control (as such term is defined in the
Medium Term Note Indenture) and a resulting downgrade in the ratings of the Medium Term Notes, Series 2 to below an investment
grade, Pembina will be required to make an offer to repurchase all or, at the option of any holder of Medium Term Notes, Series
2, any part, at a purchase price payable in cash equal to 101 percent of the aggregate outstanding principal amount thereof plus
accrued and unpaid interest, if any, to the date of purchase.
Medium Term Notes, Series 3
On April 30, 2013, Pembina issued and sold
$200 million aggregate principal amount of Medium Term Notes, Series 3. Additionally, on February 2, 2015, Pembina issued and sold
$150 million aggregate principal amount of Medium Term Notes, Series 3 through the re-opening of the series. The Medium Term Notes,
Series 3 have an annual coupon rate of interest of 4.75 percent and mature on April 30, 2043. Pembina's obligations under the Medium
Term Notes, Series 3 and the Medium Term Note Indenture are guaranteed by certain subsidiaries of Pembina.
Pembina may redeem the Medium Term Notes, Series
3, either in whole at any time, or in part from time to time, upon not less than 30 and not more than 60 days prior notice, (a)
at any time prior to October 30, 2042 at a price equal to the greater of (i) par and (ii) the Canada Yield Price (as defined below),
and (b) at any time on or after October 30, 2042 at a price equal to par, plus, in either case, accrued but unpaid interest, if
any, to but excluding the date of redemption. "Canada Yield Price" means, in effect, a price equal to the price
of the Medium Term Notes, Series 3 calculated in accordance with generally accepted financial practice in Canada to provide a yield
to maturity equal to the Government of Canada Yield plus 0.585 percent per annum for the Medium Term Notes, Series 3 issued April
30, 2013. "Government of Canada Yield" means, on any date, in effect, the yield to maturity on such date compounded
semi-annually which a non-callable Government of Canada bond would carry if issued, in Canadian dollars in Canada, at 100 percent
of its principal amount on such date with a term to maturity equal to the remaining term to maturity of the Medium Term Notes,
Series 3. The Government of Canada Yield will be the average of the yields determined by two major Canadian investment dealers
selected by Pembina. In certain circumstances following a Change of Control (as such term is defined in the Medium Term Note Indenture)
and a resulting downgrade in the ratings of the Medium Term Notes, Series 3 to below an investment grade, Pembina will be required
to make an offer to repurchase all or, at the option of any holder of Medium Term Notes, Series 3, any part, at a purchase price
payable in cash equal to 101 percent of the aggregate outstanding principal amount thereof plus accrued and unpaid interest, if
any, to the date of purchase.
Medium Term Notes, Series 4
On April 4, 2014, Pembina issued and sold $600
million aggregate principal amount of Medium Term Notes, Series 4. The Medium Term Notes, Series 4 have an annual coupon rate of
interest of 4.81 percent and mature on March 25, 2044. Pembina's obligations under the Medium Term Notes, Series 4 and the Medium
Term Note Indenture are guaranteed by certain subsidiaries of Pembina.
Pembina may redeem the Medium Term Notes, Series
4, either in whole at any time, or in part from time to time, upon not less than 30 and not more than 60 days prior notice, (a)
at any time prior to September 25, 2043 at a price equal to the greater of (i) par and (ii) the Canada Yield Price (as defined
below), and (b) at any time on or after September 25, 2043 at a price equal to par, plus, in either case, accrued but unpaid interest,
if any, to but excluding the date of redemption. "Canada Yield Price" means, in effect, a price equal to the price
of the Medium Term Notes, Series 4 calculated in accordance with generally accepted financial practice in Canada to provide a yield
to maturity equal to the Government of Canada Yield plus 0.45 percent per annum for the Medium Term Notes, Series 4 issued April
4, 2014. "Government of Canada Yield" means, on any date, in effect, the yield to maturity on such date compounded
semi-annually which a non-callable Government of Canada bond would carry if issued, in Canadian dollars in Canada, at 100 percent
of its principal amount on such date with a term to maturity equal to the remaining term to maturity of the Medium Term Notes,
Series 4. The Government of Canada Yield will be the average of the yields determined by two major Canadian investment dealers
selected by Pembina. In certain circumstances following a Change of Control (as such term is defined in the Medium Term Note Indenture)
and a resulting downgrade in the ratings of the Medium Term Notes, Series 4 to below an investment grade, Pembina will be required
to make an offer to repurchase all or, at the option of any holder of Medium Term Notes, Series 4, any part, at a purchase price
payable in cash equal to 101 percent of the aggregate outstanding principal amount thereof plus accrued and unpaid interest, if
any, to the date of purchase.
Medium Term Notes, Series 5
On February 2, 2015, Pembina issued and sold
$450 million aggregate principal amount of Medium Term Notes, Series 5. The Medium Term Notes, Series 5 have an annual coupon rate
of interest of 3.54 percent and mature on February 3, 2025. Pembina's obligations under the Medium Term Notes, Series 5 and the
Medium Term Note Indenture are guaranteed by certain subsidiaries of Pembina.
Pembina may redeem the Medium Term Notes, Series
5, either in whole at any time, or in part from time to time, upon not less than 30 and not more than 60 days prior notice, (a)
at any time prior to November 3, 2024 at a price equal to the greater of (i) par and (ii) the Canada Yield Price (as defined below),
and (b) at any time on or after November 3, 2024 at a price equal to par, plus, in either case, accrued but unpaid interest, if
any, to but excluding the date of redemption. "Canada Yield Price" means, in effect, a price equal to the price
of the Medium Term Notes, Series 5 calculated in accordance with generally accepted financial practice in Canada to provide a yield
to maturity equal to the Government of Canada Yield plus 0.54 percent per annum for the Medium Term Notes, Series 5 issued
February 2, 2015. "Government of Canada Yield" means, on any date, in effect, the yield to maturity on such date
compounded semi-annually which a non-callable Government of Canada bond would carry if issued, in Canadian dollars in Canada, at
100 percent of its principal amount on such date with a term to maturity equal to the remaining term to maturity of the Medium
Term Notes, Series 5. The Government of Canada Yield will be the average of the yields determined by two major Canadian investment
dealers selected by Pembina. In certain circumstances following a Change of Control (as such term is defined in the Medium Term
Note Indenture) and a resulting downgrade in the ratings of the Medium Term Notes, Series 5 to below an investment grade, Pembina
will be required to make an offer to repurchase all or, at the option of any holder of Medium Term Notes, Series 5, any part, at
a purchase price payable in cash equal to 101 percent of the aggregate outstanding principal amount thereof plus accrued and unpaid
interest, if any, to the date of purchase.
Other Debt
Other debt at December 31, 2014 included $267
million in Series D senior unsecured notes bearing interest at 5.91 percent payable semi-annually due November 2019 (the "Series
D Senior Notes"); and $200 million in Series C unsecured notes bearing interest at 5.58 percent payable semi-annually
due September 2021 (the "Series C Senior Notes"). The Senior Notes are subject to the maintenance of certain financial
ratios.
Credit Ratings
The following information with respect to Pembina's
credit ratings is provided as it relates to Pembina's financing costs and liquidity. Specifically, credit ratings affect Pembina's
ability to obtain short-term and long-term financing and the cost of such financing. A reduction in the current ratings on Pembina's
debt by its rating agencies, particularly a downgrade below investment grade ratings, could adversely affect Pembina's cost of
financing and its access to sources of liquidity and capital. In addition, changes in credit ratings may affect Pembina's ability
to, and the associated costs of, entering into normal course derivative or hedging transactions. Credit ratings are intended to
provide investors with an independent measure of credit quality of any issues of securities. The credit ratings assigned by the
rating agencies are not recommendations to purchase, hold or sell the securities nor do the ratings comment on market price or
suitability for a particular investor. Any rating may not remain in effect for a given period of time or may be revised or withdrawn
entirely by a rating agency in the future if in its judgement circumstances so warrant.
Pembina has paid each of S&P and DBRS (as
defined below) their customary fees in connection with the provision of the below ratings. Pembina has not made any payments to
S&P or DBRS over the past two years for services unrelated to the provision of such ratings.
DBRS Limited
DBRS Limited ("DBRS") has
assigned a debt rating of "BBB" to each of the Medium Term Notes, Series 1, the Medium Term Notes, Series 2, the Medium
Term Notes, Series 3, the Medium Term Notes, Series 4 and the Medium Term Notes, Series 5. DBRS has also rated Pembina's senior
unsecured notes 'BBB'.
The BBB rating is the fourth highest of DBRS'
ten rating categories for long-term debt, which range from AAA to D. DBRS uses "high" and "low" designations
on ratings from AA to C to indicate the relative standing of securities being rated within a particular rating category. The absence
of a "high" or "low" designation indicates that a rating is in the middle of the category. The BBB rating indicates
that, in DBRS's view, the rated securities are of adequate credit quality. The capacity for the payment of financial obligations
is considered acceptable; however the issuer may be vulnerable to future events.
The Series 1 Class A Preferred Shares, Series
3 Class A Preferred Shares, Series 5 Class A Preferred Shares and Series 7 Class A Preferred Shares have been rated Pfd-3 by DBRS.
DBRS' ratings for preferred shares range from a high of Pfd-1 to a low of D. "High" or "low" grades are used
to indicate the relative standing within a rating category. The absence of either a "high" or "low" designation
indicates the rating is in the middle of the category. According to the DBRS rating system, preferred shares rated Pfd-3 are of
adequate credit quality. While protection of dividends and principal is still considered acceptable, the issuing entity is more
susceptible to adverse changes in financial and economic conditions, and there may be other adverse conditions present which detract
from debt protection.
When a significant event occurs that directly
impacts the credit quality of a particular entity or group of entities, DBRS will attempt to provide an immediate rating opinion.
However, if there is uncertainty regarding the outcome of the event, and DBRS is unable to provide an objective, forward-looking
opinion in a timely fashion, then the ratings of the issuer will be placed "Under Review."
Standard & Poor's
Standard & Poor's Rating Services, a division
of The McGraw-Hill Companies ("S&P") has a long-term corporate credit rating on Pembina of 'BBB'. S&P
also has assigned a rating of "BBB" to the Medium Term Notes, Series 1, the Medium Term Notes, Series 2, the Medium Term
Notes, Series 3, the Medium Term Notes, Series 4 and the Medium Term Notes, Series 5.
The BBB rating is the fourth highest rating,
of S&P's ten rating categories for long-term debt which range from AAA to D. The ratings from AA to CCC may be modified by
the addition of a plus (+) or minus (–) sign to show relative standing within the major rating categories. Issues of debt
securities rated BBB are judged by S&P to exhibit adequate protection parameters. However, adverse economic conditions or changing
circumstances are more likely to lead to a weakened capacity of the obligor to meet its financial commitment on the obligation.
The Series 1 Class A Preferred Shares, Series
3 Class A Preferred Shares, Series 5 Class A Preferred Shares and Series 7 Class A Preferred Shares have been rated P-3 (High)
by S&P. S&P's ratings for preferred shares range from a high of P-1 to a low of P-5. "High" or "low"
grades are used to indicate the relative standing within a rating category. According to the S&P rating system, securities
rated P-3 are regarded as having significant speculative characteristics. While such securities will likely have some quality and
protective characteristics, these may be outweighed by large uncertainties or major exposures to adverse conditions. An obligation
rated P-3 (High) is less vulnerable to non-payment than other speculative issues. However, it faces major ongoing uncertainties
or exposure to adverse business, financial or economic conditions which could lead to the obliger's inadequate capacity to meet
its financial commitment on the obligation.
These securities ratings are not recommendations
to purchase, hold or sell the securities inasmuch as such ratings do not comment as to market price or suitability for a particular
investor. There is no assurance that any rating will remain in effect for any given period of time or that any rating will not
be revised or withdrawn entirely by a rating agency in the future if, in its judgment, circumstances so warrant.
See "Risk Factors – General Risk
Factors – Credit Ratings".
DIVIDENDS AND DISTRIBUTIONS
Cash Dividends
Common Shares
Pembina paid its initial monthly dividend of
$0.13 per Common Share on November 15, 2010 to Shareholders of record on October 25, 2010. On April 12, 2012, following closing
of the Provident Acquisition, Pembina announced an increase to its monthly dividend rate from $0.13 to $0.135 per Common Share.
Another increase was announced on August 9, 2013, when Pembina raised its monthly dividend rate from $0.135 to $0.14 per Common
Share. On May 8, 2014, Pembina announced a further increase to its monthly dividend rate from $0.14 to $0.145 per Common Share.
The following table sets forth the amount of monthly cash dividends paid by Pembina in 2012, 2013, 2014 and to date in 2015.
Cash Dividends Per Common Share
Month of Payment
Date | |
2015 | | |
2014 | | |
2013 | | |
2012 | |
January | |
$ | 0.145 | | |
$ | 0.14 | | |
$ | 0.135 | | |
$ | 0.13 | |
February | |
$ | 0.145 | | |
$ | 0.14 | | |
$ | 0.135 | | |
$ | 0.13 | |
March | |
| | | |
$ | 0.14 | | |
$ | 0.135 | | |
$ | 0.13 | |
April | |
| | | |
$ | 0.14 | | |
$ | 0.135 | | |
$ | 0.13 | |
May | |
| | | |
$ | 0.14 | | |
$ | 0.135 | | |
$ | 0.135 | |
June | |
| | | |
$ | 0.145 | | |
$ | 0.135 | | |
$ | 0.135 | |
July | |
| | | |
$ | 0.145 | | |
$ | 0.135 | | |
$ | 0.135 | |
August | |
| | | |
$ | 0.145 | | |
$ | 0.135 | | |
$ | 0.135 | |
September | |
| | | |
$ | 0.145 | | |
$ | 0.14 | | |
$ | 0.135 | |
October | |
| | | |
$ | 0.145 | | |
$ | 0.14 | | |
$ | 0.135 | |
November | |
| | | |
$ | 0.145 | | |
$ | 0.14 | | |
$ | 0.135 | |
December | |
| | | |
$ | 0.145 | | |
$ | 0.14 | | |
$ | 0.135 | |
Total | |
$ | 0.29 | | |
$ | 1.715 | | |
$ | 1.64 | | |
$ | 1.60 | |
On February 6, 2015, Pembina announced that
the Board of Directors had declared a dividend of $0.145 per Common Share to be paid, subject to applicable law, on March 13, 2015
to holders of Common Shares of record on February 25, 2015.
Preferred Shares
Dividends on each issued series of Class A
Preferred Shares are payable on the first day of March, June, September and December of each year, if, as and when declared by
the Board. Additional information regarding dividends payable on the Class A Preferred Shares can be found under the heading "Class
A Preferred Shares" herein. The initial dividend on the Series 1 Class A Preferred Shares was paid on December 1, 2013
to shareholders of record on November 1, 2013 for the period commencing on the date of issuance (July 26, 2013) up to but excluding
November 30, 2013. The initial dividend on the Series 3 Class A Preferred Shares was paid on December 1, 2013 to shareholders of
record on November 1, 2013 for the period commencing on the date of issuance (October 2, 2013) up to but excluding November 30,
2013. The initial dividend on the Series 5 Class A Preferred Shares was paid on March 1, 2014 for the period commencing on the
date of issuance (April 4, 2014) up to but excluding March 1, 2014. The initial dividend on the Series 7 Class A Preferred Shares
was paid on December 1, 2014 for the period commencing on the date of issuance (September 11, 2014) up to but excluding December
1, 2014.
Cash Dividends Per Class A Preferred Share
Quarterly
Payment Date | |
Series 1 | | |
Series 3 | | |
Series 5 | | |
Series 7 | | |
Total | |
2013 | |
| | | |
| | | |
| | | |
| | | |
| | |
December 1 | |
$ | 0.3726 | | |
$ | 0.1932 | | |
| N/A | | |
| N/A | | |
$ | 0.5658 | |
2014 | |
| | | |
| | | |
| | | |
| | | |
| | |
March 1 | |
$ | 0.265625 | | |
$ | 0.29375 | | |
$ | 0.1507 | | |
| N/A | | |
$ | 0.710075 | |
June 1 | |
$ | 0.265625 | | |
$ | 0.29375 | | |
$ | 0.3125 | | |
| N/A | | |
$ | 0.871875 | |
September 1 | |
$ | 0.265625 | | |
$ | 0.29375 | | |
$ | 0.3125 | | |
| N/A | | |
$ | 0.871875 | |
December 1 | |
$ | 0.265625 | | |
$ | 0.29375 | | |
$ | 0.3125 | | |
$ | 0.2497 | | |
$ | 1.1216 | |
| |
| | | |
| | | |
| | | |
| | | |
| | |
On January 12, 2015, Pembina announced that
the Board of Directors had declared a quarterly dividend of $0.265625 per Series 1 Class A Preferred Share, $0.29375 per Series
3 Class A Preferred Share, $0.3125 per Series 5 Class A Preferred Share and $0.28125 per Series 7 Class A Preferred Share to be
paid, subject to applicable law, on March 1, 2015 to holders of record on February 1, 2015.
The declaration and payment of any dividend
by Pembina is at the discretion of the Board of Directors and will depend on numerous factors, including compliance with applicable
laws and the financial performance, debt obligations, working capital requirements and future capital requirements of Pembina and
its subsidiaries. See "Risk Factors".
The agreements governing Pembina's Credit Facilities
provide that if an event of default has occurred under the Credit Facilities, the indebtedness may be accelerated by the lenders,
and the ability to pay dividends thereupon ceases. Pembina is restricted from making distributions (including the declaration of
dividends) if it is in default under its Credit Facilities (or a default would be expected to occur as a result of such distribution)
or if its borrowings exceed its borrowing base threshold.
MARKET FOR SECURITIES
The Common Shares are listed and traded on
the TSX under the symbol "PPL". The following table sets forth the price range for and trading volume of the Common Shares
on the TSX for 2014, as reported by the TSX.
Month | |
High ($) | | |
Low ($) | | |
Close ($) | | |
Volume | |
January | |
| 38.48 | | |
| 36.52 | | |
| 38.23 | | |
| 9,228,471 | |
February | |
| 40.85 | | |
| 37.57 | | |
| 39.91 | | |
| 11,715,674 | |
March | |
| 42.36 | | |
| 39.06 | | |
| 41.98 | | |
| 37,027,594 | |
April | |
| 43.27 | | |
| 41.13 | | |
| 43.07 | | |
| 22,059,739 | |
May | |
| 46.56 | | |
| 42.29 | | |
| 42.81 | | |
| 15,268,130 | |
June | |
| 45.99 | | |
| 43.11 | | |
| 45.91 | | |
| 14,361,335 | |
July | |
| 47.20 | | |
| 44.43 | | |
| 45.68 | | |
| 14,471,226 | |
August | |
| 49.97 | | |
| 44.55 | | |
| 49.97 | | |
| 13,031,662 | |
September | |
| 53.04 | | |
| 44.69 | | |
| 47.18 | | |
| 20,328,816 | |
October | |
| 47.84 | | |
| 39.05 | | |
| 46.76 | | |
| 26,639,454 | |
November | |
| 47.00 | | |
| 38.82 | | |
| 38.96 | | |
| 22,100,885 | |
December | |
| 42.83 | | |
| 36.26 | | |
| 42.34 | | |
| 33,595,199 | |
The Common Shares are also listed on the NYSE
under the trading symbol "PBA". The following table sets forth the price range for and trading volume of the Common Shares
on the NYSE for 2014, as reported by Bloomberg.
Month | |
High (US$) | | |
Low (US$) | | |
Close (US$) | | |
Volume | |
January | |
| 35.20 | | |
| 33.55 | | |
| 34.34 | | |
| 114,279 | |
February | |
| 36.65 | | |
| 33.80 | | |
| 35.54 | | |
| 151,288 | |
March | |
| 38.44 | | |
| 35.09 | | |
| 36.08 | | |
| 154,135 | |
April | |
| 39.51 | | |
| 37.57 | | |
| 38.37 | | |
| 143,008 | |
May | |
| 42.76 | | |
| 38.72 | | |
| 40.36 | | |
| 153,447 | |
June | |
| 43.02 | | |
| 39.55 | | |
| 41.53 | | |
| 163,493 | |
July | |
| 43.65 | | |
| 41.61 | | |
| 42.68 | | |
| 129,804 | |
August | |
| 46.03 | | |
| 40.84 | | |
| 43.63 | | |
| 188,596 | |
September | |
| 48.89 | | |
| 40.14 | | |
| 45.96 | | |
| 323,201 | |
October | |
| 42.76 | | |
| 30.45 | | |
| 40.73 | | |
| 416,150 | |
November | |
| 41.64 | | |
| 34.46 | | |
| 38.69 | | |
| 362,865 | |
December | |
| 36.96 | | |
| 31.30 | | |
| 34.37 | | |
| 437,080 | |
The Series C Convertible Debentures are listed
and traded on the TSX under the symbol "PPL.DB.C". The following table sets forth the price range for and trading volume
of the Series C Convertible Debentures on the TSX for 2014, as reported by the TSX.
Month | |
High ($) | | |
Low ($) | | |
Close ($) | | |
Volume | |
January | |
| 136.00 | | |
| 130.00 | | |
| 136.00 | | |
| 62,648 | |
February | |
| 143.00 | | |
| 133.99 | | |
| 141.00 | | |
| 82,180 | |
March | |
| 148.60 | | |
| 138.00 | | |
| 148.60 | | |
| 261,667 | |
April | |
| 152.00 | | |
| 145.00 | | |
| 151.50 | | |
| 266,320 | |
May | |
| 160.51 | | |
| 149.00 | | |
| 153.50 | | |
| 16,200 | |
June | |
| 160.55 | | |
| 151.99 | | |
| 160.00 | | |
| 45,985 | |
July | |
| 165.00 | | |
| 157.00 | | |
| 161.00 | | |
| 18,710 | |
August | |
| 175.04 | | |
| 157.36 | | |
| 175.04 | | |
| 172,080 | |
September | |
| 185.50 | | |
| 159.04 | | |
| 166.00 | | |
| 14,100 | |
October | |
| 166.00 | | |
| 146.00 | | |
| 164.50 | | |
| 16,400 | |
November | |
| 165.00 | | |
| 145.00 | | |
| 147.00 | | |
| 5,140 | |
December | |
| 147.00 | | |
| 130.00 | | |
| 147.00 | | |
| 7,020 | |
The Series E Convertible Debentures are listed
and traded on the TSX under the symbol "PPL.DB.E". The following table sets forth the price range for and trading volume
of the Series E Convertible Debentures on the TSX for 2014, as reported by the TSX.
Month | |
High ($) | | |
Low ($) | | |
Close ($) | | |
Volume | |
January | |
| 153.30 | | |
| 146.50 | | |
| 152.47 | | |
| 14,740 | |
February | |
| 160.13 | | |
| 150.85 | | |
| 160.00 | | |
| 3,430 | |
March | |
| 169.07 | | |
| 156.10 | | |
| 169.00 | | |
| 11,880 | |
April | |
| 173.00 | | |
| 166.00 | | |
| 172.18 | | |
| 96,810 | |
May | |
| 182.36 | | |
| 171.50 | | |
| 178.50 | | |
| 2,130 | |
June | |
| 180.00 | | |
| 176.00 | | |
| 180.00 | | |
| 1,550 | |
July | |
| 187.08 | | |
| 180.87 | | |
| 184.29 | | |
| 4,330 | |
August | |
| 199.16 | | |
| 182.00 | | |
| 199.16 | | |
| 2,030 | |
September | |
| 211.75 | | |
| 180.09 | | |
| 190.00 | | |
| 13,025 | |
October | |
| 185.00 | | |
| 180.00 | | |
| 184.44 | | |
| 590 | |
November | |
| 175.00 | | |
| 170.00 | | |
| 170.00 | | |
| 990 | |
December | |
| 160.00 | | |
| 150.00 | | |
| 160.00 | | |
| 700 | |
The Series F Convertible Debentures are listed
and traded on the TSX under the symbol "PPL.DB.F". The following table sets forth the price range for and trading volume
of the Series F Convertible Debentures on the TSX for 2014, as reported by the TSX.
Month | |
High ($) | | |
Low ($) | | |
Close ($) | | |
Volume | |
January | |
| 131.31 | | |
| 126.67 | | |
| 131.31 | | |
| 57,500 | |
February | |
| 139.25 | | |
| 130.00 | | |
| 136.00 | | |
| 146,610 | |
March | |
| 144.00 | | |
| 134.00 | | |
| 144.00 | | |
| 229,860 | |
April | |
| 148.00 | | |
| 140.50 | | |
| 146.55 | | |
| 128,920 | |
May | |
| 155.21 | | |
| 145.00 | | |
| 148.94 | | |
| 119,010 | |
June | |
| 155.75 | | |
| 148.07 | | |
| 155.75 | | |
| 171,700 | |
July | |
| 159.00 | | |
| 151.77 | | |
| 155.20 | | |
| 18,930 | |
August | |
| 170.00 | | |
| 153.00 | | |
| 170.00 | | |
| 7,460 | |
September | |
| 179.21 | | |
| 153.35 | | |
| 160.00 | | |
| 27,088 | |
October | |
| 161.00 | | |
| 140.00 | | |
| 158.00 | | |
| 18,520 | |
November | |
| 157.23 | | |
| 144.16 | | |
| 144.16 | | |
| 1,000 | |
December | |
| 140.17 | | |
| 128.07 | | |
| 138.50 | | |
| 13,220 | |
The Series 1 Class A Preferred Shares are listed
and traded on the TSX under the symbol "PPL.PR.A". The following table sets forth the price range for and trading volume
of the Series 1 Class A Preferred Shares on the TSX for 2014, as reported by the TSX.
Month | |
High ($) | | |
Low ($) | | |
Close ($) | | |
Volume | |
January | |
| 24.80 | | |
| 23.60 | | |
| 24.00 | | |
| 262,342 | |
February | |
| 23.99 | | |
| 23.49 | | |
| 23.88 | | |
| 123,318 | |
March | |
| 24.50 | | |
| 23.79 | | |
| 24.41 | | |
| 180,179 | |
April | |
| 24.95 | | |
| 24.21 | | |
| 24.71 | | |
| 108,079 | |
May | |
| 25.00 | | |
| 23.88 | | |
| 23.92 | | |
| 154,113 | |
June | |
| 24.54 | | |
| 23.33 | | |
| 24.35 | | |
| 130,975 | |
July | |
| 25.00 | | |
| 24.28 | | |
| 24.47 | | |
| 135,901 | |
August | |
| 24.71 | | |
| 24.04 | | |
| 24.69 | | |
| 106,148 | |
September | |
| 24.50 | | |
| 24.18 | | |
| 24.44 | | |
| 353,968 | |
October | |
| 24.90 | | |
| 24.17 | | |
| 24.90 | | |
| 105,975 | |
November | |
| 25.04 | | |
| 24.59 | | |
| 24.93 | | |
| 128,123 | |
December | |
| 25.17 | | |
| 22.79 | | |
| 24.40 | | |
| 156,619 | |
The Series 3 Class A Preferred Shares are
listed and traded on the TSX under the symbol "PPL.PR.C". The following table sets forth the price range for and trading
volume of the Series 1 Class A Preferred Shares on the TSX for 2014, as reported by the TSX.
Month | |
High ($) | | |
Low ($) | | |
Close ($) | | |
Volume | |
January | |
| 25.35 | | |
| 24.56 | | |
| 24.56 | | |
| 286,328 | |
February | |
| 24.95 | | |
| 24.40 | | |
| 24.85 | | |
| 76,295 | |
March | |
| 25.00 | | |
| 24.75 | | |
| 24.85 | | |
| 108,087 | |
April | |
| 25.39 | | |
| 24.93 | | |
| 25.20 | | |
| 74,778 | |
May | |
| 25.58 | | |
| 24.76 | | |
| 24.76 | | |
| 103,590 | |
June | |
| 25.48 | | |
| 24.49 | | |
| 25.22 | | |
| 101,346 | |
July | |
| 25.97 | | |
| 25.23 | | |
| 25.55 | | |
| 72,888 | |
August | |
| 25.60 | | |
| 25.01 | | |
| 25.21 | | |
| 68,163 | |
September | |
| 25.61 | | |
| 24.99 | | |
| 25.37 | | |
| 38,847 | |
October | |
| 25.64 | | |
| 24.79 | | |
| 25.29 | | |
| 69,367 | |
November | |
| 25.78 | | |
| 25.18 | | |
| 25.40 | | |
| 64,253 | |
December | |
| 25.50 | | |
| 23.42 | | |
| 24.97 | | |
| 93,546 | |
The Series 5 Class A Preferred Shares were
listed and posted for trading on the TSX on January 16, 2014 under the symbol "PPL.PR.E". The following table sets forth
the price range for and trading volume of the Series 5 Class A Preferred Shares on the TSX for January 16, 2014 through to December
31, 2014, as reported by the TSX.
Month | |
High ($) | | |
Low ($) | | |
Close ($) | | |
Volume | |
January 16-31 | |
| 25.24 | | |
| 24.90 | | |
| 25.11 | | |
| 1,752,649 | |
February | |
| 26.09 | | |
| 25.13 | | |
| 26.00 | | |
| 467,446 | |
March | |
| 26.00 | | |
| 25.50 | | |
| 25.77 | | |
| 386,218 | |
April | |
| 26.00 | | |
| 25.67 | | |
| 25.80 | | |
| 423,803 | |
May | |
| 26.34 | | |
| 25.41 | | |
| 25.41 | | |
| 181,162 | |
June | |
| 26.07 | | |
| 25.26 | | |
| 26.07 | | |
| 163,856 | |
July | |
| 26.82 | | |
| 25.74 | | |
| 25.75 | | |
| 186,207 | |
August | |
| 26.37 | | |
| 25.75 | | |
| 26.35 | | |
| 175,807 | |
September | |
| 26.30 | | |
| 25.82 | | |
| 26.06 | | |
| 159,101 | |
October | |
| 26.22 | | |
| 25.71 | | |
| 25.85 | | |
| 81,779 | |
November | |
| 26.23 | | |
| 25.80 | | |
| 26.00 | | |
| 257,248 | |
December | |
| 26.07 | | |
| 25.10 | | |
| 25.70 | | |
| 142,579 | |
The Series 7 Class A Preferred Shares were
listed and posted for trading on the TSX on September 11, 2014 under the symbol "PPL.PR.G". The following table sets
forth the price range for and trading volume of the Series 7 Class A Preferred Shares on the TSX for September 11, 2014 through
to December 31, 2014, as reported by the TSX.
Month | |
High ($) | | |
Low ($) | | |
Close ($) | | |
Volume | |
September 11-30 | |
| 25.52 | | |
| 25.05 | | |
| 25.40 | | |
| 1,639,789 | |
October | |
| 25.65 | | |
| 25.10 | | |
| 25.58 | | |
| 352,728 | |
November | |
| 25.75 | | |
| 25.29 | | |
| 25.54 | | |
| 96,093 | |
December | |
| 25.41 | | |
| 24.56 | | |
| 25.02 | | |
| 391,861 | |
DIRECTORS AND OFFICERS
Directors of Pembina
The following table sets out the name and residence
for each director of Pembina as of the date of this Annual Information Form, the date on which they were appointed as a director
of Pembina (or as a trustee of the Fund prior to an internal reorganization in which the directors of Pembina replaced a board
of trustees of the Fund as the entity responsible for the governance of the Fund) and their principal occupations during the past
five years.
Name and
Residence |
|
Date Appointed |
|
Principal Occupation
During
the Past Five Years |
|
|
|
|
|
Anne-Marie N. Ainsworth(2)(4)
Houston, Texas, USA |
|
October 7, 2014 |
|
Independent businesswoman since March 2014; prior thereto, President and Chief Executive Officer and a member of the Board of Directors of the general partner of Oiltanking Partners, L.P. (a master limited partnership engaged in independent storage and transportation of crude oil, refined petroleum products and liquefied petroleum gas) and President and Chief Executive Officer of Oiltanking Holding Americas, Inc. from November 2012 to March 2014; prior thereto, Senior Vice President of Refining of Sunoco Inc. from November 2009 to March 2012. Currently member of the board of directors of Seventy Seven Energy Inc. |
|
|
|
|
|
Grant D. Billing(2)(3)
Calgary, Alberta, Canada
|
|
April 2, 2012 |
|
Independent businessman since November 2011; prior thereto, Chairman and Chief Executive Officer of Superior Plus Corp. (a propane distribution, specialty chemicals and construction products distribution company) from July 2006 to November 2011 and Executive Chairman since 1998. |
|
|
|
|
|
Michael H. Dilger
Calgary, Alberta, Canada |
|
January 1, 2014 |
|
President and Chief Executive Officer of Pembina since January 1, 2014; prior thereto, President and Chief Operating Officer of Pembina from February 2012 until December 31, 2012; prior thereto, Vice President, Chief Operating Officer of Pembina from November 2008 to February 2012. Currently member of the board of directors of Trilogy Energy Corp. |
|
|
|
|
|
Randall J. Findlay(1)(3)(5)(6)(7)
Calgary, Alberta, Canada |
|
March 8, 2007 |
|
Corporate director; prior thereto, President of Provident Energy Trust from 2001 to 2006. Currently member of the board of directors of HNZ Group Inc., Superior Plus Corp., Whitemud Resources Inc. and Spyglass Resources Corp. (will not be standing for re-election for Spyglass Resources Corp. on May 13, 2015). |
|
|
|
|
|
Name and
Residence |
|
Date Appointed |
|
Principal Occupation
During
the Past Five Years |
|
|
|
|
|
Lorne B. Gordon(2)(4)(6)
Calgary, Alberta, Canada
|
|
October 24, 1997 |
|
Independent businessman; prior thereto, Vice Chairman of Coril Holdings Ltd. (a private investment and holding company) from 2004 to 2006. |
|
|
|
|
|
David M.B. LeGresley(2)(5)
Toronto, Ontario, Canada
|
|
August 16, 2010 |
|
Independent businessman since September 2008; prior thereto, Vice Chairman of National Bank Financial from 2006 to 2008. Currently member of the board of directors of Equitable Group Inc. |
|
|
|
|
|
Robert B. Michaleski(4)(6)
Calgary, Alberta, Canada
|
|
January 4, 2000 |
|
Corporate director; prior thereto, Chief Executive
Officer of Pembina from February, 2012 until December 31, 2013; prior thereto, President and Chief Executive Officer of Pembina.
Currently member of the board of directors of Essential Energy Services.
|
|
|
|
|
|
Leslie A. O'Donoghue(3)(5)
Calgary, Alberta, Canada
|
|
December 17, 2008 |
|
Executive Vice President, Corporate Development
and Strategy and Chief Risk Officer of Agrium Inc. (a retail supplier of agricultural products and services and a producer and
marketer of agricultural nutrients and industrial products) since October 30, 2012; prior thereto, Executive Vice President, Operations
of Agrium Inc. from April 30, 2011 to October 30, 2012; prior thereto, Chief Legal Officer and Senior Vice President, Business
Development of Agrium Inc.
|
|
|
|
|
|
Jeffrey T. Smith(4)(5)
Calgary, Alberta, Canada |
|
April 2, 2012 |
|
Independent businessman. Currently serves on
the board of NAL Resources Limited (an oil and gas company) and Spyglass Resources Corp.
|
|
|
|
|
|
Gordon J. Kerr
Calgary, Alberta, Canada |
|
January 15, 2015 |
|
Independent businessman since 2013; prior thereto, President and Chief Executive Officer and director
of Enerplus Corporation (a North American energy producer) from May 2001 until July 2013. Currently member of the board of directors
of Laricina Energy Ltd.
|
Notes:
| (1) | Chairman of the Board. |
| (2) | Member of Audit Committee. |
| (3) | Member of Human Resources and Compensation Committee. |
| (4) | Member of the Health, Safety and Environment Committee. |
| (5) | Member of the Governance Committee. |
| (6) | Member of the Major Capital Projects Committee. |
| (7) | Mr. Findlay was a director of Wellpoint Systems Inc. (a TSX Venture Exchange listed company) from
June 2008 until January 31, 2011. Wellpoint Systems Inc. was placed into receivership by two of its lenders on January 31, 2011.
Wellpoint Systems Inc. was a company supplying software to the energy industry in Canada, the U.S. and internationally. |
Shareholders elect the directors of Pembina
at each annual meeting of the Shareholders. The directors of Pembina serve until the next annual meeting of the Shareholders or
until their successors are duly elected or appointed. All of Pembina's directors are "independent" within the meaning
of National Instrument 58–101 – Disclosure of Corporate Governance Practices, adopted by the Canadian Securities
Administrators, with the exception of Mr. Dilger, who is President and Chief Executive Officer of Pembina, and Mr. Michaleski,
who was the Chief Executive Officer of Pembina until December 31, 2013 (and therefore deemed non-independent until December 31,
2016). In addition, Pembina has adopted Standards for Director Independence which meet or exceed the requirements set out in National
Policy 58–201 – Corporate Governance Guidelines, National Instrument 52–110 – Audit Committees,
the SEC rules and regulations, the Sarbanes-Oxley Act of 2002 and the NYSE rules.
The Board of Directors has five committees,
being the Audit Committee, the Health, Safety and Environment Committee, the Human Resources and Compensation Committee, the Governance
Committee and the Major Capital Projects Committee. Additional information regarding the responsibilities of these committees will
be contained in Pembina's information circular for its annual meeting of Shareholders to be held on May 8, 2015.
Executive Officers of Pembina
The following table sets out the name, residence
and office held with Pembina for each executive officer of the Company, as well as their principal occupations during the past
five years.
Name and
Residence |
|
Office
with Pembina |
|
Principal Occupation
During
the Past Five Years |
|
|
|
|
|
Michael H. Dilger
Calgary, Alberta, Canada |
|
President and Chief Executive Officer |
|
President and Chief Executive Officer since January 1, 2014; prior thereto, President and Chief Operating Officer of Pembina since February 15, 2012; prior thereto, Vice President, Chief Operating Officer of Pembina since November 2008. |
|
|
|
|
|
Paul J. Murphy
Calgary, Alberta, Canada |
|
Senior Vice President, Pipeline and Crude Oil Facilities |
|
Senior Vice President, Pipeline and Crude Oil Facilities since September 4, 2013; prior thereto, Vice President, Conventional Pipelines of Pembina since February 14, 2011; prior thereto, Vice President, NGL Extraction of Inter Pipeline Fund since July 2004. |
|
|
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Stuart V. Taylor
Calgary, Alberta, Canada |
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Senior Vice President, NGL and Natural Gas Facilities |
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Senior Vice President, NGL and Natural Gas Facilities since September 4, 2013; prior thereto, Vice President, Gas Services of Pembina since July 1, 2009; prior thereto, Manager, Planning of Talisman Energy Inc. since November 2003. |
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J. Scott Burrows
Calgary, Alberta, Canada |
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Vice President, Finance and Chief Financial Officer |
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Vice President, Finance and Chief Financial Officer since January 1, 2015; prior thereto, Vice President, Capital Markets of Pembina since September 2013; prior thereto, Vice President, Corporate Development and Investor Relations since March 2013; prior thereto, Senior Manager, Corporate Development and Planning since February 2012. |
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Robert M. Jones
Calgary, Alberta, Canada |
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Vice President, Crude Oil Midstream |
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Vice President, Crude Oil Midstream of Pembina since November 2008. |
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Andrew Gruszecki
Calgary, Alberta, Canada |
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Vice President, Oil Sands & Heavy Oil |
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Vice President, Oil Sands & Heavy Oil of Pembina since October 2014; prior thereto, Vice President, Business Development from April 2012 to October 2014; prior thereto, Executive Vice President, Business Development of Provident from January 2006 to April 2012. |
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Name and
Residence |
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Office
with Pembina |
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Principal Occupation
During
the Past Five Years |
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Robert D. Lock
Calgary, Alberta, Canada |
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Vice President, NGL Midstream |
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Vice President, NGL Midstream of Pembina since April 2012; prior thereto, Vice President, Supply and Extraction of Provident since 2005. |
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Jason T. Wiun
Calgary, Alberta, Canada |
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Vice President, Conventional Pipelines |
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Vice President, Conventional Pipelines of Pembina since January 1, 2014; prior thereto, Vice President, Gas Services since September 2013; prior thereto, Senior Manager, Business Development, Conventional Pipelines since 2011; prior thereto, controller for the Conventional Pipelines business unit. |
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Jaret A. Sprott
Calgary, Alberta, Canada |
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Vice President, Gas Services |
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Vice President, Gas Services of Pembina since January 1, 2015; prior thereto, Senior Manager, Peace River Arch (Alberta Montney), Northern Operating Area of Encana Corporation since March 2013; prior thereto, Senior Manager Bighorn (Deep Basin Cretaceous) since April 2012. |
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Debbie A. Sulkers
Calgary, Alberta, Canada
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Vice President, Corporate Services |
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Vice President, Corporate Services of Pembina since June 2011; prior thereto, Vice President, Human Resources of SemCAMS ULC (a natural gas gathering and processing company) from October 2006 to April 2011. |
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Harold K. Andersen
Calgary, Alberta, Canada |
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Vice President, Legal and General Counsel |
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Vice President, Legal and General Counsel of Pembina since April 1, 2013; prior thereto, General Counsel of Pembina since December 2011; prior thereto, Partner and Associate at Stikeman Elliott LLP (a law firm) from June 2000 to December 2011. |
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Claudia D'Orazio
Calgary, Alberta, Canada |
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Vice President, Compliance and Risk |
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Vice President, Compliance and Risk since October 2014; prior thereto, Vice President, Risk, Information Services and Procurement of Pembina since September 2013; prior thereto, Vice President, Risk and Treasurer since April 2012; prior thereto, Corporate Controller since 2006. |
As at February 26, 2015, the directors
and executive officers of Pembina beneficially owned, or controlled or directed, directly or indirectly, an aggregate of 1,721,237
Common Shares, representing approximately 0.6 percent of the then outstanding Common Shares.
Conflict of Interest
The directors and executive officers named
above may be directors or officers of entities which are in competition with or are customers or suppliers of Pembina. As such,
these directors or officers of Pembina may encounter conflicts of interest in the administration of their duties with respect to
Pembina. See "Risk Factors – General Risk Factors – Potential Conflicts of Interest".
AUDIT COMMITTEE INFORMATION
The Audit Committee's Charter
The Audit Committee Charter is set forth in
Appendix "A" to this Annual Information Form.
Composition of the Audit Committee and
Relevant Education and Experience
Pembina's Audit Committee is comprised of David
M.B. LeGresley, as Chairman, Anne-Marie Ainsworth, Lorne B. Gordon and Grant D. Billing each of whom is independent and financially
literate within the meaning of National Instrument 52–110 – Audit Committees of the Canadian Securities Administrators
and in accordance with Pembina's Standards for Director Independence available at www.pembina.com. Set forth below are additional
details regarding each member of the Audit Committee.
David M.B. LeGresley
David M.B. LeGresley is the Chairman of the
Audit Committee and has been a member of the Audit Committee since April 2, 2012. Mr. LeGresley is independent within the
meaning of such term in National Instrument 52-110 – Audit Committees, and in accordance with the rules prescribed
by the SEC and the NYSE. David LeGresley is a former executive of National Bank Financial and spent 12 years with that company,
most recently serving as Vice Chairman from 2006 to 2008. Prior to that assignment he was National Bank Financial's Executive Vice
President and Head of Corporate and Investment Banking (1999 to 2006); Managing Director and Head of Vancouver Investment Banking
(1998 to 1999); and Managing Director, Investment Banking (1996 to 1998). Mr. LeGresley has extensive experience in the financial
services industry including positions at Salomon Brothers Canada from 1990 to 1996 and CIBC Wood Gundy from 1986 to 1990. He also
serves as a director of a TSX-listed company, Equitable Group Inc., as well as one private company, Woodland Biofuels Inc. He is
on the advisory committee for CANFAR (the Canadian Foundation for AIDS Research). Mr. LeGresley received a Bachelor of Applied
Science Degree in Engineering from the University of Toronto in 1981 and a Master of Business Administration from Harvard Business
School in 1986. He is a graduate of the Institute of Corporate Directors – Rotman Directors Education Program and a member
of the Institute of Corporate Directors. This business experience provides Mr. LeGresley with the skill set and financial
literacy required to carry out his duties as a member of the Audit Committee.
Anne-Marie Ainsworth
Anne-Marie
N. Ainsworth is independent within the meaning of such term in National Instrument 52-110 – Audit
Committees, and in accordance with the rules prescribed by the SEC and the NYSE. Ms. Ainsworth
currently serves as a member of the board of directors and audit committee of Seventy Seven
Energy Inc. She has served as President and Chief Executive Officer and a member of the Board of Directors of the general partner
of Oiltanking Partners, L.P. and as President and Chief Executive Officer of Oiltanking Holding Americas, Inc. from November 2012
to March 2014. Ms. Ainsworth previously held the position of Senior Vice President of Refining of Sunoco Inc. from November 2009
until March 2012. Prior to joining Sunoco, Ms. Ainsworth was employed by Motiva Enterprises, LLC, where she was the General Manager
of the Motiva Norco Refinery in Norco, Louisiana from 2006 to 2009. From 2003 to 2006 Ms. Ainsworth was Director of Management
Systems & Process Safety at Shell Oil Products U.S., and from 2000 to 2003 she was Vice President of Technical Assurance at
Shell Deer Park Refining Company. Ms. Ainsworth holds a Master of Business Administration degree from Rice University, where she
served as an adjunct professor from October 2000 to October 2009, and a Bachelor of Science degree in Chemical Engineering from
the University of Toledo. This business experience provides Ms. Ainsworth with the skill set and financial literacy required to
carry out her duties as a member of the Audit Committee.
Lorne B. Gordon
Lorne
B. Gordon is independent within the meaning of such term in National Instrument 52-110 – Audit Committees,
and in accordance with the rules prescribed by the SEC and the NYSE. Mr. Gordon is an independent businessman who served as the
Vice-Chairman of Coril Holdings Ltd. (a private investment and holding company) from 2004 to 2006 and as President and CEO from
1997 to 2004. Mr. Gordon was the President and CEO of Pembina Resources Limited from 1985 to 1993. Until 2007, Mr. Gordon was a
director of the privately held companies Mancal Corporation, Mancal Energy and Mancal Coal. He is a past Chairman of the Canadian
Petroleum Association, a founding member of the Board of Governors of the Canadian Association of Petroleum Producers, and a member
of the Institute of Corporate Directors. Mr. Gordon received his Chartered Accountant Designation in 1971. This business experience,
coupled with his training as a Chartered Accountant, provides Mr. Gordon with the skill set and financial literacy required to
carry out his duties as a member of the Audit Committee.
Grant D. Billing
Grant D. Billing has been a member of the Audit
Committee since April 2, 2012. Mr. Billing is independent within the meaning of such term in National Instrument 52-110 –
Audit Committees, and in accordance with the rules prescribed by the SEC and the NYSE. Mr. Billing was the Chairman and
Chief Executive Officer of Superior Plus Corp. from 2006 to 2011, and prior thereto the Executive Chairman since 1998. Mr. Billing
has extensive strategic and business experience gained over a period of more than 30 years in various CEO/senior management capacities,
including as President and CEO of Norcen Energy Resources Ltd. He has served as chairman and director of a number of public companies,
as well as the Canadian Association of Petroleum Producers. He holds a Bachelor of Science degree from the University of Calgary.
This experience, coupled with his designation as a Chartered Accountant, received in 1976, provide Mr. Billing with the skill set
and financial literacy required to carry out his duties as a member of the Audit Committee.
Pre-Approval Policies and Procedures for
Audit and Non-Audit Services
The terms of engagement of Pembina's external
auditors provide that audit services provided to Pembina by the external auditors, including the budgeted fees for such audit services
and the representations and disclaimer relating thereto, must be pre-approved by the entire Audit Committee.
In addition, subject to any de minimis
exemption available under applicable laws, all permitted non-audit services provided to Pembina by its external auditors, including
the terms thereof and the fees related thereto, are pre-approved by the entire Audit Committee. Notwithstanding the foregoing,
the Audit Committee's Mandate permits the Audit Committee to establish policies and procedures for the pre-approval of audit and
permitted non-audit services to be provided by the external auditors. In particular, the Audit Committee may delegate the ability
to grant such pre-approvals to one or more members of the Audit Committee to the extent permitted by law and the terms of engagement
of the external auditors, provided that any pre-approvals granted pursuant to any such delegation must be detailed as to the particular
service to be provided, may not delegate Audit Committee responsibilities to management of Pembina, and must be reported to the
full Audit Committee at its next scheduled meeting following such pre-approval.
External Auditor Service Fees
The following table sets out the fees billed
to Pembina for professional services provided by KPMG during each of the last two financial years:
Year | | |
Audit Fees(1) | | |
Audit-Related
Fees(2) | | |
Tax Fees(3) | | |
All Other Fees(4) |
| 2014 | | |
$ | 1,809,000 | | |
$ | 30,000 | | |
$ | 436,305 | | |
NIL |
| 2013 | | |
$ | 1,935,225 | | |
$ | 30,000 | | |
$ | 208,835 | | |
NIL |
Notes:
| (1) | Audit fees were for professional services rendered by KPMG
LLP for the audit of Pembina's annual financial statements and reviews of Pembina's quarterly financial statements, as well as
services provided in connection with statutory and regulatory filings or engagements. In 2014, fees included additional expense
for Pembina's prospectus supplements in connection with the offerings of Medium Term Notes, Series 4, and Class A Preferred Shares,
Series 5 and 7, and associated French translations. In addition to the 2014 fees stated above, KPMG billed $39,500 in 2015 prior
to the date hereof, for fees related to Pembina's prospectus supplements in connection with the offerings of Medium Term Notes,
Series 3 and Series 5 in February, 2015. In 2013, fees included additional expense for Pembina's base shelf prospectus, and prospectus
supplements in connection with the offerings of Common Shares, Medium Term Notes, Series 3 and Class A Preferred Shares, Series
1 and 3, and associated French translations. |
| (2) | Audit-related fees are for assurance and related services reasonably related to the performance
of the audit or review of Pembina's financial statements and not reported under "Audit Fees" above. 2014 and 2013
fees included audit fees for the pension plan audit. |
| (3) | Tax fees were for tax compliance, tax advice and tax planning. In addition to the 2014 fees stated
above, KPMG billed $31,811 in 2015 prior to the date hereof. The fees were for services performed by Pembina's auditors' tax division
except those tax services related to the audit. 2014 and 2013 (and 2015) fees included general tax consultation and tax compliance
fees incurred for preparing and filing the tax returns for Pembina's subsidiaries. |
| (4) | All other fees are fees for products and services provided by Pembina's auditors other than those
described as "Audit Fees", "Audit-related Fees" and "Tax Fees". |
RISK FACTORS
The following information is a summary only
of certain risk factors relating to Pembina or an investment in securities of Pembina or its subsidiaries and is qualified in its
entirety by reference to, and must be read in conjunction with, the detailed information appearing elsewhere in this Annual Information
Form. Shareholders and prospective investors should carefully consider these risk factors before investing in Pembina's securities,
as each of these risks may negatively affect the trading price of Pembina's securities, the amount of dividends paid to Shareholders
and holders of Class A Preferred Shares and the ability of Pembina to fund its debt obligations, including debt obligations under
its outstanding Convertible Debentures, Medium Term Notes and any other debt securities that Pembina may issue from time to time.
Investors should carefully consider the
risk factors set out below and consider all other information contained herein and in Pembina's other public filings before making
an investment decision.
Pembina continually works to mitigate the impact
of potential risks to its business by identifying all significant risks so that they can be appropriately managed. To assist with
identifying risk, Pembina has implemented a comprehensive enterprise risk management program.
Risks Inherent in Pembina's Business
Operational Risks
Operational risks include: pipeline leaks;
the breakdown or failure of equipment, pipelines and facilities, information systems or processes; the compromise of information
and control systems; the performance of equipment at levels below those originally intended (whether due to misuse, unexpected
degradation or design, construction or manufacturing defects); spills at truck terminals and hubs; spills associated with the loading
and unloading of harmful substances onto rail cars and trucks; failure to maintain adequate supplies of spare parts; operator
error; labour disputes; disputes with interconnected facilities and carriers; operational disruptions or apportionment on third
party systems or refineries which may prevent the full utilization of Pembina's facilities and pipelines; and catastrophic events
such as natural disasters, fires, floods, explosions, train derailments, earthquakes, acts of terrorists and saboteurs, and other
similar events, many of which are beyond the control of Pembina. Pembina may also be exposed from time to time, to additional operational
risks not stated in the immediately preceding sentences. The occurrence or continuance of any of these events could increase the
cost of operating Pembina's assets or reduce revenue, thereby impacting earnings. Additionally, Pembina's facilities and pipelines
are reliant on electrical power for their operations. A failure or disruption within the local or regional electrical power supply
or distribution or transmission systems could significantly affect ongoing operations. Further, a significant increase in the cost
of power or fuel could have a materially negative effect on the level of profit realized in cases where the relevant contracts
do not provide for recovery of such costs.
Pembina is committed to preserving customer
and Shareholder value by proactively managing operational risk through safe and reliable operations. Senior managers are responsible
for the daily supervision of operational risk by ensuring appropriate policies and procedures are in place within their business
units and internal controls are operating efficiently. Pembina also has an extensive program to manage system integrity, which
includes the development and use of in–line inspection tools and various other leak detection technologies. Pembina's maintenance,
excavation and repair programs are focused on risk mitigation and, as such, resources are directed to the areas of greatest benefit
and infrastructure is replaced or repaired as required. Pembina carries insurance coverage with respect to some, but not all, casualty
occurrences in amounts customary for similar business operations, which coverage may not be sufficient to compensate for all casualty
occurrences. In addition, Pembina has a comprehensive Corporate Security Management Program designed to reduce security-related
risks.
Midstream Business – Market Risk
Pembina's Midstream business includes activities
related to product storage, terminalling, and hub services. These activities expose Pembina to certain risks including that Pembina
may experience volatility in revenue, and impairments related to the book value of stored product, due to fluctuations in commodity
prices. Primarily, Pembina enters into contracts to purchase and sell crude oil at floating market prices. The prices of products
that are marketed by Pembina are subject to volatility as a result of such factors as seasonal demand changes, extreme weather
conditions, general economic conditions, changes in crude oil markets and other factors. Pembina manages its risk exposure by balancing
purchases and sales to lock-in margins. Notwithstanding Pembina's management of price and quality risk, marketing margins for crude
oil can vary and have varied significantly from period to period. This variability could have an adverse effect on the results
of Pembina's commercial Midstream business and its overall results of operations. To assist in effectively smoothing that variability
inherent in this business, Midstream is investing in assets that have a fee-based revenue component, and is looking to expand this
area going forward.
The Midstream business is also exposed to possible
price declines between the time Pembina purchases NGL feedstock and sells NGL products, and to narrowing frac spreads. Frac spread
is the difference between the selling prices for NGL products and the cost of NGL sourced from natural gas and acquired at natural
gas related prices. Frac spreads can change significantly from period to period depending on the relationship between crude oil
and natural gas prices (the "frac spread ratio"), absolute commodity prices, and changes in the Canadian to US
dollar foreign exchange rate. There is also a differential between NGL product prices and crude oil prices which can change margins
realized for midstream products separate from frac spread ratio changes. The amount of profit or loss made on the extraction portion
of the NGL midstream business will generally increase or decrease with frac spreads. This exposure could result in variability
of cash flow generated by the NGL midstream business, which could affect Pembina and the cash dividends of Pembina.
Reputation
Reputational risk is the potential market or
company specific events that could result in the deterioration of Pembina's reputation with key stakeholders. The potential for
harming Pembina's corporate reputation exists in every business decision and all risks can have an impact on reputation, which
in turn can negatively impact Pembina's business and its securities. Reputational risk cannot be managed in isolation from other
forms of risk. Credit, market, operational, insurance, liquidity, regulatory and legal risks, among others, must all be managed
effectively to safeguard Pembina's reputation. Pembina's reputation could also be impacted by the actions and activities of other
companies operating in the energy industry, particularly other energy infrastructure providers, over which it has no control. In
particular, Pembina's reputation could be impacted by negative publicity related to pipeline incidents, unpopular expansion plans
or new projects, and due to opposition from organizations opposed to energy, oil sands and pipeline development and particularly
with shipment of production from oil sands regions. Negative impacts from a compromised reputation could include revenue loss,
reduction in customer base, delays in obtaining regulatory approvals with respect to growth projects, and decreased value of Pembina's
securities.
Environmental Costs and Liabilities
Pembina's operations, facilities and petroleum
product shipments are subject to extensive national, regional and local environmental, health and safety laws and regulations governing,
among other things, discharges to air, land and water, the handling and storage of petroleum products and hazardous materials,
waste disposal, the protection of employee health, safety and the environment, and the investigation and remediation of contamination.
Pembina's facilities could experience incidents, malfunctions or other unplanned events that result in spills or emissions in excess
of permitted levels and result in personal injury, fines, penalties or other sanctions and property damage. Pembina could also
incur liability in the future for environmental contamination associated with past and present activities and properties. The facilities
and pipelines must maintain a number of environmental and other permits from various governmental authorities in order to operate,
and these facilities are subject to inspection from time to time. Failure to maintain compliance with these requirements could
result in operational interruptions, fines or penalties, or the need to install potentially costly pollution control technology.
Licenses and permits must be renewed from time to time and there is no guarantee that the license will be renewed on the same or
similar conditions. There can be no assurance that Pembina will be able to obtain all of the permits, licenses, registrations,
approvals and authorizations that may be required to conduct operations that it may wish to undertake. Further, if at any time
regulatory authorities deem any one of Pembina's pipelines or facilities unsafe or not in compliance with applicable laws, they
may order it to be shut down.
While Pembina believes its current operations
are in compliance with all applicable significant environmental and safety regulations, there can be no assurance that substantial
costs or liabilities will not be incurred. Moreover, it is possible that other developments, such as increasingly strict environmental
and safety laws, regulations and enforcement policies thereunder, claims for damages to persons or property resulting from Pembina's
operations, and the discovery of pre-existing environmental liabilities in relation to any of Pembina's existing or future properties
or operations, could result in significant costs and liabilities to Pembina. In addition, the costs of environmental liabilities
in relation to spill sites of which Pembina is currently aware (see "Other Information Relating to Pembina's Business —
Environmental Incidents") could be greater than Pembina currently anticipates, and any such differences could be substantial.
If Pembina is not able to recover the resulting costs or increased costs through insurance or increased tariffs, cash flow available
to pay dividends and to service obligations under the Convertible Debentures, Medium Term Notes and Pembina's other debt obligations
could be adversely affected.
While Pembina maintains insurance in respect
of damage caused by seepage or pollution in an amount it considers prudent and in accordance with industry standards, certain provisions
of such insurance may limit the availability thereof in respect of certain occurrences unless they are discovered within fixed
time periods, which typically range from 72 hours to 30 days. Although Pembina believes it has adequate leak detection systems
in place to monitor a significant spill of product, if Pembina is unaware of a problem or is unable to locate the problem within
the relevant time period, insurance coverage may not be available.
Abandonment Costs
Pembina is responsible for compliance with
all applicable laws and regulations regarding the abandonment of its pipeline systems and other assets at the end of their economic
life, and these abandonment costs may be substantial.
The proceeds of the disposition of certain
assets, including in respect of certain pipeline systems, line fill, may be available to offset abandonment costs. While Pembina
estimates future abandonment costs, actual costs may differ. Pembina may, in the future, determine it prudent or be required by
applicable laws or regulations to establish and fund additional reclamation funds to provide for payment of future abandonment
costs. Such reserves could decrease cash flow available for dividends and to service obligations under Pembina's debt securities
and Pembina's other debt obligations.
Pembina has complied with the NEB requirements
on its NEB-regulated pipelines for the creation of abandonment funds and has completed the compliance-based filings that are required
under the applicable NEB rules and regulations regarding the abandonment of its pipeline systems and assets. Pembina also has a
50 percent ownership in an NEB-regulated pipeline lateral which is operated by a joint venture partner. The joint venture partner
is responsible for the submission of the NEB-compliance based filings for this asset, which Pembina is in the process of reviewing.
Pembina will continue to monitor any regulatory changes prior to the next five-year review, and will complete the annual reporting
as required by the NEB. Pembina-operated rate-regulated pipelines account for less than 206 km, or three percent, of the total
infrastructure in the Conventional Pipelines business.
Reserve Replacement, Throughput and
Product Demand
Pembina's Conventional Pipeline tariff revenue
is based upon a variety of tolling arrangements, including take-or-pay contracts, cost-of-service agreements and market-based tolls.
As a result, certain pipeline tariff revenue is heavily dependent upon throughput levels of crude oil, NGL and condensate. Future
throughput on Pembina's crude oil and NGL pipelines and replacement of oil and gas reserves in the service areas will be dependent
upon the activities of producers operating in those areas as they relate to exploiting their existing reserve bases and exploring
for and developing additional reserves, and technological improvements leading to increased recovery rates. Without reserve additions,
or expansion of the service areas, throughput on such pipelines would decline over time as reserves are depleted. As oil and gas
reserves are depleted, production costs may increase relative to the value of the remaining reserves in place, causing producers
to shut-in production or seek out lower cost alternatives for transportation. If the level of tariffs collected by Pembina decreases
as a result, cash flow available for dividends and to service obligations under Pembina's debt securities and Pembina's other debt
obligations could be adversely affected.
Over the long-term, Pembina's business will
depend, in part, on the level of demand for crude oil, condensate, NGL and natural gas in the markets served by the crude oil and
NGL pipelines and gas processing and gathering infrastructure in which Pembina has an interest. Recent global economic events have
had a substantial downward effect on the prices of such products and Pembina cannot predict the impact of future economic conditions
on the energy and petrochemical industries or future demand for and prices of natural gas, crude oil, condensate and NGL. As lower
commodity prices reduce drilling activity, the increasing supply that has been fuelling the growth in pipeline infrastructure could
slow down. These factors could negatively affect pipeline and processing capacity value as transportation and processing capacity
becomes more abundant. Future prices of these products are determined by supply and demand factors, including weather and general
economic conditions as well as economic, political and other conditions in other oil and natural gas regions, all of which are
beyond Pembina's control.
The volumes of natural gas processed through
Pembina's gas processing assets and of NGL and other products transported in its pipelines depend on production of natural gas
in the areas serviced by the business and pipelines. Without reserve additions, production will decline over time as reserves are
depleted and production costs may rise. Producers may shut-in production at lower product prices or higher production costs. Producers
in the areas serviced by the business may not be successful in exploring for and developing additional reserves or achieving technological
improvements to increase recovery rates, and the gas plants and the pipelines may not be able to maintain existing volumes of throughput.
Commodity prices may not remain at a level which encourages producers to explore for and develop additional reserves or produce
existing marginal reserves. Given the current adverse global economic conditions, the prices of these products have decreased substantially
from recently high levels and the risks that producers will not seek reserves additions has heightened. Lower production volumes
will also increase the competition for natural gas supply at gas processing plants which could result in higher shrinkage premiums
being paid to natural gas producers.
The rate and timing of production from proven
natural gas reserves tied into the gas plants is at the discretion of the producers and is subject to regulatory constraints. The
producers have no obligation to produce natural gas from these lands. Pembina's gas processing assets are connected to various
third party trunk line systems. Operational disruptions or apportionment on those third party systems may prevent the full utilization
of the business.
Over the long-term, Pembina's business will
depend, in part, on the level of demand for NGL and natural gas in the geographic areas in which deliveries are made by pipelines
and the ability and willingness of shippers having access or rights to utilize the pipelines to supply such demand. Pembina cannot
predict the impact of future economic conditions, fuel conservation measures, alternative fuel requirements, governmental regulation
or technological advances in fuel economy and energy generation devices, all of which could reduce the demand for natural gas and
NGL.
Completion and Timing of Expansion Projects
The successful completion of Pembina growth
and expansion projects is dependent on a number of factors outside of Pembina's control, including the impact of general economic,
business and market conditions, availability of capital at attractive rates, receipt of regulatory approvals, reaching long-term
commercial arrangements with customers in respect of certain portions of the expansions, construction schedules and costs that
may change depending on supply, demand and/or inflation, labour, materials and equipment availability, contractor non-performance,
weather conditions, and cost of engineering services. There is no certainty, nor can Pembina provide any assurance, that necessary
regulatory approvals will be received on terms that maintain the expected return on investment associated with a specific projects,
or at all, or that satisfactory commercial arrangements with customers will be reached where needed on a timely basis or at all,
or that third parties will comply with contractual obligations in a timely manner. Factors such as special interest group opposition,
Aboriginal, landowner and other stakeholder consultation requirements, changes in shipper support over time, and changes to the
legislative or regulatory framework could all have an impact on contractual and regulatory milestones being accomplished. As a
result, the cost estimates and completion dates for Pembina's major projects can change during different stages of the project.
Early stage projects face additional challenges including securing leases, easements, rights-of-way, permits and/or licenses from
landowners or governmental authorities allowing access for such purposes, as well as Aboriginal consultation requirements. Accordingly,
actual costs and timing estimates may vary from initial estimates and these differences can be significant, and certain projects
may not proceed as planned, or at all. Further, there is a risk that maintenance will be required more often than currently planned
or that significant maintenance capital projects could arise that were not previously anticipated.
Under
most of Pembina's construction and operation agreements, the Company is obligated to construct the facilities regardless of delays
and cost increases and Pembina bears the risk for any cost overruns, and future agreements with customers entered into with respect
to expansions may contain similar conditions. While Pembina is not currently aware of any significant undisclosed cost overruns
at the date hereof, any such cost overruns in the future may adversely affect the economics of particular
projects, as well as Pembina's business operations and financial results, and could reduce Pembina's expected return on investment
which, in turn, could reduce the level of cash available for dividends and to service obligations under Pembina's debt securities
and other debt obligations. See "– General Risk Factors – Additional Financing and Capital Resources"
and "Shipper and Processing Contracts" below.
Operating and Capital Costs
Operating and capital costs of Pembina's business
may vary considerably from current and forecast values and rates and represent significant components of the cost of providing
service. In general, as equipment ages, costs associated with such equipment may increase over time. Dividends may be reduced if
significant increases in operating or capital costs are incurred and this may also impact the ability of Pembina to service obligations
under its debt securities and other debt obligations.
Although operating costs are to be recaptured
through the tariffs charged on natural gas volumes processed and oil and NGL transported, respectively, to the extent such charges
escalate, producers may seek lower cost alternatives or stop production of their natural gas and/or crude oil.
Possible Failure to Realize Anticipated
Benefits of Corporate Strategy
Pembina evaluates the value proposition for
expansion projects, new acquisitions or divestitures on an ongoing basis. Planning and investment analysis is highly dependent
on accurate forecasting assumptions and to the extent that these assumptions do not materialize, financial performance may be lower
or more volatile than expected. Volatility in the economy, change in cost estimates, project scoping and risk assessment could
result in a loss in profits for Pembina. Large scale acquisitions in particular may involve significant pricing and integration
risk. As part of its ongoing strategy, Pembina may complete acquisitions of assets or other entities in the future. Achieving the
benefits of completed and future acquisitions depends in part on successfully consolidating functions and integrating operations,
procedures and personnel in a timely and efficient manner, as well as Pembina's ability to realize the anticipated growth opportunities
and synergies from combining the acquired businesses and operations with those of Pembina. The integration of acquired businesses
and entities requires the dedication of substantial management effort, time and resources which may divert management's focus and
resources from other strategic opportunities and from operational matters during this process. The integration process may result
in the loss of key employees and the disruption of ongoing business, customer and employee relationships that may adversely affect
Pembina's ability to achieve the anticipated benefits of any acquisitions. Acquisitions may also expose Pembina to additional risks,
including entry into markets or businesses in which Pembina has little or no direct prior experience, increased credit risks through
the assumption of additional debt, costs and contingent liabilities and exposure to liabilities of the acquired business or assets.
See "– General Risk Factors – Additional Financing and Capital Resources" below.
Risks Relating to Crude/NGL by Rail
Pembina's operations include rail loading,
offloading and terminalling facilities. Pembina relies on railroads and trucks to distribute its products for customers as well
as to transport raw materials to its processing facilities. Costs for environmental damage, damage to property and personal injury
in the event of a railway incident involving hydrocarbons have the potential to be significant and liabilities to Pembina are possible.
At this time, the Railway Safety Act (Canada), which governs the operation of railway equipment, does not contemplate regulatory
enforcement proceedings against shippers, but consignors and shippers may be subject to regulatory proceedings under the Transportation
of Dangerous Goods Act (Canada), which specifies the obligations of shippers to identify and classify dangerous goods, select
appropriate equipment and prepare shipping documentation. In 2014, the Canadian Transportation Agency conducted a review of third
party liability insurance regulations for railways, and Transport Canada initiated a broader consultation process concerning the
allocation of risk and responsibilities for third party liability among railways, shippers and other stakeholders. These consultations
may result in further regulatory initiatives. In addition, major railway companies in Canada have implemented standard contract
and/or tariff provisions aimed at shifting responsibility for certain damages and claims to shippers. Under various environmental
statutes in both Canada and the United States, Pembina could be held responsible for environmental damage caused by hydrocarbons
loaded at its facilities or being carried on its leased rail cars. Pembina partially mitigates this risk by securing insurance
coverage.
Recent railway incidents in Canada and the
United States have prompted regulatory bodies to initiate reviews of transportation rules and publish various directives. Regulators
in Canada and the United States have begun to phase-in more stringent engineering standards for tank cars used to move petroleum
products which will require all North American tank cars carrying crude or ethanol that do not currently meet these standards to
be retrofitted by May 1, 2017, and will require all tank cars carrying flammable liquids to be compliant by May 1, 2025. While
most legislative changes apply directly to railway companies, costs associated with retrofitting locomotives and rail cars, implementing
safety systems, increased inspection and reporting requirements may be indirectly passed on to Pembina through increased freight
rates and car leasing costs. In addition, regulators in Canada and the United States have implemented changes that impose obligations
relating to certification of product and equipment procedures and emergency response procedures, directly on consignors and shippers
such as Pembina.
In the event that Pembina is ultimately held
liable for any damages resulting from its activities relating to crude/NGL by rail, for which insurance is not available, or increased
costs or obligations are imposed on Pembina as a result of new regulations, such could have an impact on Pembina's business, operations
and prospects and could impact earnings and cash flow available to pay dividends and to service obligations under Pembina's debt
securities and other debt obligations.
Competition
Pembina competes with other pipelines, midstream
and marketing and gas processing and handling services providers in its service areas as well as other transporters of crude oil
and NGL. The introduction of competing transportation alternatives into Pembina's service areas could potentially have the impact
of limiting Pembina's ability to adjust tolls as it may deem necessary and result in the reduction of throughput in Pembina's pipelines.
Additionally, potential pricing differentials on the components of NGL may result in these components being transported by competing
gas pipelines. Pembina believes it is prepared for and determined to meet these existing and potential competitive pressures.
Pembina also competes with other businesses for growth and business opportunities, which could impact its ability to grow through
acquisitions. See "Conventional Pipelines Business – Competitive Environment", "Oil Sands and Heavy
Oil Business – Competitive Environment", "Gas Services Business – Competitive Environment",
"Midstream Business – Competitive Environment".
Shipper and Processing Contracts
Throughput on Pembina's pipelines is or will
be governed by transportation contracts or tolling arrangements with various producers of petroleum products. In addition, Pembina
is party to numerous contracts of varying durations in respect of its gas gathering, processing and fractionation facilities. Any
default by counterparties under such contracts or any expiration of such contracts or tolling arrangements without renewal or replacement
may have an adverse effect on Pembina's business. Furthermore, some of the contracts associated its gas gathering, processing and
fractionation facilities are comprised of a mixture of firm and interruptible service contracts and the revenue that Pembina earns
on the contracts which are based on interruptible service is dependent on the volume of natural gas and NGL produced by producers
in the relevant geographic areas and lower than historical production volumes in these areas (for reasons such as low commodity
prices) may have an adverse effect on Pembina's revenue. See "Description of Pembina's Business and Operations —
Oil Sands & Heavy Oil Business", "Description of Pembina's Business and Operations — Conventional
Pipelines Business", and "Description of Pembina's Business and Operations – Gas Services Business".
Reliance on Principal Customers and
Operators
Pembina relies on several significant customers
to purchase product from the Midstream business. Ethane is predominately purchased by NOVA Chemicals and Dow Canada. Cenovus and
its affiliates will purchase the majority of the condensate from the Empress debutanizer. Plains All American Pipeline operates
the Plains E1 Plant at Empress, Alberta and the west to east system described herein, and NOVA Chemicals operates the Vantage Pipeline.
Certain of Pembina's full-service terminals are operated under joint venture arrangements with third parties. If for any reason
these parties were unable to perform their obligations under the various agreements with Pembina, the revenue and dividends of
the Company and the operations of the Midstream business could be negatively impacted. See "- General Risk Factors
– Credit Risk".
Risk Factors Relating to the Securities
of Pembina
Dilution of Shareholders
Pembina is authorized to issue, among other
classes of shares, an unlimited number of Common Shares for consideration and on terms and conditions as established by the Board
of Directors without the approval of Shareholders in certain instances. The Shareholders will have no pre-emptive rights in connection
with such further issues.
Risk Factors Relating to the Activities
of Pembina and the Ownership of Securities
The following is a list of certain risk factors
relating to the activities of Pembina and the ownership of its securities:
| · | the level of Pembina's indebtedness from time to time could impair Pembina's ability to obtain
additional financing on a timely basis to take advantage of business opportunities that may arise; |
| · | the uncertainty of future dividend payments by Pembina and the level thereof as Pembina's dividend
policy and the funds available for the payment of dividends from time to time will be dependent upon, among other things, operating
cash flow generated by Pembina and its subsidiaries, financial requirements for Pembina's operations and the execution of its growth
strategy and the satisfaction of solvency tests imposed by the ABCA for the declaration and payment of dividends; |
| · | Pembina may make future acquisitions or may enter into financings or other transactions involving
the issuance of securities of Pembina which may be dilutive; |
| · | the inability of Pembina to manage growth effectively, and realize the anticipated growth opportunities
from acquisitions and new projects, could have a material adverse impact on its business, operations and prospects; and |
| · | the risk that the market value of the Common Shares may deteriorate materially if Pembina is unable
to meet its cash dividend targets or make cash dividends in the future. |
Market Value of Common Shares and Other
Securities
Pembina cannot predict at what price the Common
Shares, Convertible Debentures, Class A Preferred Shares or other securities issued by Pembina will trade in the future. Common
Shares, Convertible Debentures, Class A Preferred Shares and other securities of Pembina will not necessarily trade at values determined
solely by reference to the underlying value of Pembina's assets. One of the factors that may influence the market price of such
securities is the annual yield on the Common Shares, Class A Preferred Shares and the Convertible Debentures. An increase in market
interest rates may lead purchasers of Common Shares, Class A Preferred Shares or Convertible Debentures to demand a higher annual
yield and this could adversely affect the market price of the Common Shares, Class A Preferred Shares or Convertible Debentures.
In addition, the market price for the Common Shares, Class A Preferred Shares and the Convertible Debentures may be affected by
announcements of new developments, changes in Pembina's operating results, failure to meet analysts' expectations, changes in credit
ratings, changes in general market conditions, fluctuations in the market for equity or debt securities and numerous other factors
beyond the control of Pembina.
Shareholders are encouraged to obtain independent
legal, tax and investment advice in their jurisdiction of residence with respect to the holding of Common Shares, Class A Preferred
Shares or Convertible Debentures.
General Risk Factors
Additional Financing and Capital Resources
The timing and amount of Pembina's capital
expenditures, and the ability of the Company to repay or refinance existing debt as it becomes due, directly affects the amount
of cash dividends that Pembina pays. Future acquisitions, expansions of Pembina's pipeline systems and midstream operations, and
other capital expenditures and the repayment or refinancing of existing debt as it becomes due will be financed from sources such
as cash generated from operations, the issuance of additional shares or other securities (including debt securities) of Pembina,
and borrowings. Dividends may be reduced, or even eliminated, at times when significant capital or other expenditures are made.
There can be no assurance that sufficient capital will be available on terms acceptable to Pembina, or at all, to make additional
investments, fund future expansions or make other required capital expenditures. As a result of the recent weakened global economic
situation, Pembina may have restricted access to capital and increased borrowing costs. Although Pembina's business and asset base
have not changed materially, the ability of Pembina to raise capital is dependent upon, among other factors, the overall state
of capital markets and investor demand for investments in the energy industry and Pembina's securities in particular. To the extent
that external sources of capital, including the issuance of additional shares or other securities or the availability of additional
credit facilities, become limited or unavailable on favourable terms or at all due to credit market conditions or otherwise, the
ability of Pembina to make the necessary capital investments to maintain or expand its operations, to repay outstanding debt and
to invest in assets, as the case may be, may be impaired. To the extent Pembina is required to use cash flow to finance capital
expenditures or acquisitions or to repay existing debt as it becomes due, the level of dividends payable may be reduced.
Regulation
Legislation in Alberta and British Columbia
exists to ensure that producers have fair and reasonable opportunities to produce, process and market their reserves. In Alberta,
the AER and in British Columbia, the BCUC, may, on application and following a hearing (and in Alberta with the approval of
the Lieutenant Governor in Council), declare the operator of a pipeline a common carrier of oil or NGL and, as such, must not discriminate
between producers who seek access to the pipeline. Producers and shippers may also apply to the regulatory authorities for a review
of tariffs, and such tariffs may then be regulated if it is proven that the tariffs are not just and reasonable. Applications by
producers to have a pipeline operator declared a common carrier are usually accompanied by an application to have the tariffs set
by the regulatory authorities. The extent to which regulatory authorities in such instances can override existing transportation
or processing contracts has not been fully decided. The potential for direct regulation of tolls, other than for Pembina's provincially
regulated B.C. Pipelines, while considered remote by Pembina, could result in toll levels that are less advantageous to Pembina
and could impair the economic operation of such regulated pipeline systems.
In June, 2013, the Responsible Energy Development
Act ("REDA") came into force in Alberta. As a result of REDA, the AER assumed all the powers, duties and functions
of the Energy Resource Conservation Board under Alberta's energy enactments. The AER also assumed responsibility for the land-use
authorizations and dispositions for energy-related activities under the Public Lands Act and for exploration activity for
petroleum, natural gas, and other minerals, except metallic and industrial minerals under Mines and Minerals Act (Part 8).
In spring of 2014, the Water Act and the Environmental Protection and Enhancement Act also came under the AER. The
AER is now the single regulatory body that Pembina primarily deals with related to Alberta-issued energy permits, with some minor
exceptions. In 2015, Pembina will continue to monitor for legislative or procedural changes that could impose an administrative
or financial burden on the company as a result of single regulator.
In addition to the regulatory requirements
pertaining to the processing and transportation of natural gas, NGL and crude oil, Pembina's business and financial condition could
be influenced by federal and foreign legislation affecting, in particular, foreign investment, through legislation such as the
Competition Act (Canada) and the Investment Canada Act (Canada), and their equivalents in foreign jurisdictions.
Counterparty credit risk
Counterparty credit risk represents the financial
loss Pembina would experience if a counterparty to a financial instrument failed to meet its contractual obligations in accordance
with the terms and conditions of the financial instruments with Pembina. Counterparty credit risk arises primarily from Pembina's
cash and cash equivalents, trade and other receivables, and from counterparties to its derivative financial instruments.
During the recent deterioration of global financial
markets, Pembina continued to closely monitor and reassess the creditworthiness of its counterparties, including financial institutions.
This has resulted in Pembina reducing or mitigating its exposure to certain counterparties where it is deemed warranted and permitted
under contractual terms. Pembina manages counterparty credit risk through established credit management techniques, including conducting
comprehensive financial and other assessments for all new counterparties and regular reviews of existing counterparties to establish
and monitor a counterparty's creditworthiness, setting exposure limits, monitoring exposures against these limits and obtaining
financial assurances where warranted. Pembina utilizes various sources of financial, credit and business information in assessing
the creditworthiness of a counterparty including external credit ratings, where available, and in other cases, detailed financial
statement analysis in order to generate an internal credit rating based on quantitative and qualitative factors. The establishment
of counterparty exposure limits is governed by a Board-designated counterparty exposure limit matrix which represents the maximum
dollar amounts of counterparty exposure by debt rating that can be approved for a counterparty. Pembina continues to closely monitor
and reassess the creditworthiness of its counterparties, which has resulted in Pembina reducing or mitigating its exposure to certain
counterparties where it was deemed warranted and permitted under contractual terms.
Financial assurances may include guarantees,
letters of credit and cash. As at December 31, 2014, letters of credit are held by Pembina on $41 million (December 31, 2013: $51
million) of its receivables balance.
Typically, Pembina has collected its receivables
in full and at December 31, 2014, approximately 85 percent were current. Pembina has a general lien and a continuing and first
priority security interest in, and a secured charge on, all of a shipper's petroleum in its custody. The risk of non-collection
is considered to be low and no impairment of trade and other receivables has been made.
Pembina monitors and manages its concentration
of counterparty credit risk on an ongoing basis. Pembina also evaluates counterparty risk from the perspective of future exposure
that is created through commercial agreements with existing or new counterparties that support future capital expansion projects.
Pembina believes these measures minimize its counterparty credit risk but there is no certainty that they will protect it against
all material losses. As part of its ongoing operations, Pembina must balance its market and counterparty credit risks when making
business decisions.
Debt Service
At the end of 2014, Pembina had exposure to
floating interest rates on $510 million in debt, which was subsequently repaid in February 2015. Debt exposure is managed
by using derivative financial instruments. A one percent change in short-term interest rates would have an annualized impact of
approximately $4 million on net cash flows.
Variations in interest rates and scheduled
principal repayments, if required under the terms of the banking agreements could result in significant changes in the amounts
required to be applied to debt service before payment of any dividends. Certain covenants in the agreements with the lenders may
also limit payments and dividends paid by Pembina.
Pembina and its subsidiaries are permitted
to borrow funds to finance the purchase of pipelines and other energy infrastructure assets, to fund capital expenditures and other
financial obligations or expenditures in respect of those assets and for working capital purposes. Amounts paid in respect of interest
and principal on debt incurred in respect of those assets reduce the amount of cash flow available for Common Share dividends.
Variations in interest rates and scheduled principal repayments for which Pembina may not be able to refinance at favourable rates
or at all, could result in significant changes in the amount required to be applied to service debt, which could have detrimental
effects on the amount of cash available for Common Share dividends. Pembina, on a consolidated basis, is also required to meet
certain financial covenants under the Credit Facilities and is subject to customary restrictions on its operations and activities,
including restrictions on the granting of security, incurring indebtedness and the sale of its assets.
The lenders under Pembina's unsecured credit
facilities have also been provided with guarantees and subordination agreements. If Pembina becomes unable to pay its debt service
charges or otherwise commits an event of default such as bankruptcy, payments to all of the lenders will rank in priority to dividends
and payments to holders of Convertible Debentures.
Although Pembina believes the existing credit
facilities are sufficient for immediate requirements, there can be no assurance that the amount will be adequate for the future
financial obligations of Pembina or that additional funds will be able to be obtained on terms favourable to Pembina or at all.
Credit Ratings
Rating agencies regularly evaluate Pembina,
basing their ratings of its long-term and short-term debt on a number of factors. This includes Pembina's financial strength as
well as factors not entirely within its control, including conditions affecting the industry in which Pembina operates generally
and the wider state of the economy. There can be no assurance that one or more of Pembina's credit ratings will not be downgraded.
Pembina's borrowing costs and ability to raise
funds are directly impacted by its credit ratings. Credit ratings may be important to suppliers or counterparties when they seek
to engage in certain transactions. A credit rating downgrade could potentially impair Pembina's ability to enter into arrangements
with suppliers or counterparties, to engage in certain transactions, and could limit Pembina's access to private and public credit
markets and increase the costs of borrowing under its existing credit facilities. A downgrade could also limit Pembina's access
to debt and preferred share markets and increase its cost of borrowing.
The occurrence of a downgrade in Pembina's
credit ratings could adversely affect its ability to execute portions of its business strategy and could have a material adverse
effect on its liquidity, results of operations and capital position.
Changes in Legislation
There can be no assurance that income tax laws,
regulatory and environmental laws or policies and government incentive programs relating to the pipeline or oil and natural gas
industry, will not be changed in a manner which adversely affects Pembina or its Shareholders or other securityholders.
Reliance on Management and Labour
Shareholders and other securityholders of Pembina
will be dependent on senior management and directors of the Company in respect of the governance, administration and management
of all matters relating to Pembina and its operations and administration. The loss of the services of key individuals could have
a detrimental effect on Pembina. Further, the costs associated with retaining key individuals could adversely affect Pembina's
business opportunities and financial results.
Competition for qualified personnel in the
oil and gas industry is intense and there is no assurance that Pembina will continue to attract and retain all personnel necessary
for the development and operation of its business.
Aboriginal Land Claims and Consultation
Obligations
Aboriginal peoples have claimed title and rights
to a substantial portion of the lands in western Canada. Such claims, if successful, could have a significant adverse effect on
Pembina's Canadian operations. Further, the successful assertion of Aboriginal title or other claims could have a significant adverse
effect on natural gas production or oil sands development in Alberta, which in turn could have a material adverse effect on Pembina's
business and operations, including the volume of natural gas and NGL handled through Pembina's facilities.
Additionally, the federal and provincial governments
in Canada have a duty to consult and, where appropriate, accommodate Aboriginal people where the interests of the Aboriginal peoples
may be affected by a Crown action or decision. Accordingly, the Crown's duty may result in regulatory approvals being delayed or
not being obtained in relation to Pembina's Canadian operations.
Potential Conflicts of Interest
Shareholders and other securityholders of Pembina
are dependent upon senior management and the directors of Pembina for the governance, administration and management of the Company.
Certain directors and officers of Pembina may be directors or officers of entities in competition to Pembina and, as such, these
directors or officers of Pembina may encounter conflicts of interest in the administration of their duties with respect to Pembina.
Litigation
Pembina and its various subsidiaries and affiliates
are, in the course of their business, subject to lawsuits and other claims. Defence and settlement costs associated with such lawsuits
and claims can be substantial, even with respect to lawsuits and claims that have no merit. Due to the inherent uncertainty of
the litigation process, the resolution of any particular legal proceeding could have a material adverse effect on the financial
position or operating results of Pembina.
Variations in Interest Rates and Foreign
Exchange Rates
Variations in interest rates could result in
a significant change in the amount Pembina pays to service debt, potentially impacting dividends payable. Variations in the exchange
rate for the Canadian dollar versus the U.S. dollar could affect future dividends.
Health and Safety
The operation of Pembina's business is subject
to hazards of gathering, processing, transporting, fractionating, storing and marketing hydrocarbon products, including but not
limited to: blowouts; fires; explosions; gaseous leaks; migration of harmful substances; oil spills; corrosion; and acts of vandalism
and terrorism. Any of these hazards can interrupt operations, impact Pembina's reputation, cause loss of life or personal injury,
result in loss of or damage to equipment, property, information technology systems, related data and control systems, and cause
environmental damage that may include polluting water, land or air.
INTEREST OF MANAGEMENT AND OTHERS IN MATERIAL
TRANSACTIONS
To the knowledge of the directors and executive
officers of Pembina, none of the directors or executive officers of Pembina, and no person or company that is the direct or indirect
beneficial owner of, or who exercises control or direction over, more than 10 percent of the Common Shares, and no associate or
affiliate of any of the foregoing, has had any material interest, direct or indirect, in any transaction with Pembina since January
1, 2012 that has materially affected Pembina, or in any proposed transaction that would materially affect Pembina.
MATERIAL CONTRACTS
No contracts material to Pembina and its subsidiaries
were entered into during 2014 or 2015 to date or are currently in effect, other than contracts entered into in the ordinary course
of business.
LEGAL PROCEEDINGS
There are no outstanding legal proceedings,
or regulatory actions, penalties or sanctions material to Pembina to which Pembina or any of its direct or indirect subsidiaries
is a party or in respect of which any of the properties of Pembina or any of its direct or indirect subsidiaries are subject, nor
are there any such proceedings, actions, penalties or sanctions known to be contemplated.
REGISTRAR AND TRANSFER AGENT
The registrar and transfer agent for the Common
Shares, the Convertible Debentures, the Medium Term Notes and the Class A Preferred Shares is Computershare Trust Company of Canada,
at its principal offices in Calgary, Alberta, Canada and Toronto, Ontario, Canada. The co-transfer agent and registrar for the
Common Shares in the U.S. is Computershare Investor Services U.S., at its principal offices in Golden, Colorado, U.S.
INTERESTS OF EXPERTS
KPMG LLP are the auditors of the Corporation
and have confirmed that they are independent with respect to the Corporation within the meaning of the relevant rules and related
interpretations prescribed by the relevant professional bodies in Canada and any applicable legislation or regulations and also
that they are independent accountants with respect to the Corporation under all relevant U.S. professional and regulatory standards.
ADDITIONAL INFORMATION
Additional information relating to Pembina
and legacy Provident filed with the Canadian securities commissions and the SEC can be found on Pembina's profile on the SEDAR
website at www.sedar.com, the EDGAR website at www.sec.gov, and on Pembina's website at www.pembina.com. Additional information,
including directors' and officers' remuneration and indebtedness, principal holders of Pembina's securities and securities authorized
for issuance under equity compensation plans, as applicable, is contained in Pembina's information circular for its most recent
annual meeting of securityholders that involved the election of directors. Furthermore, additional financial information relating
to Pembina is provided in Pembina's audited consolidated financial statements and MD&A for its most recently completed financial
year, which have also been filed on SEDAR and EDGAR.
Any document referred to in this Annual Information
Form and described as being filed on SEDAR at www.sedar.com and on EDGAR at www.sec.gov (including those documents referred to
as being incorporated by reference in this Annual Information Form) may be obtained free of charge from us by contacting our Investor
Relations Department by telephone (toll free 1-855-880-7404) or by email (investor-relations@pembina.com).
APPENDIX "A" – AUDIT COMMITTEE
CHARTER
The Audit Committee is a committee of the Board
of Directors (the "Board") of Pembina Pipeline Corporation (the "Corporation") to which the Board has delegated
certain responsibilities relating to the integrity of financial reporting, oversight of the external auditors, oversight of Pembina's
internal audit function and the performance of internal accounting procedures, for the Corporation and entities controlled by the
Corporation (collectively, "Pembina"). The Audit Committee also prepares reports, if and when required, for inclusion
in Pembina's disclosure documents.
The objectives of the Audit Committee are:
| (a) | assist Board oversight of the integrity, preparation and
disclosure of the financial statements and related matters; |
| (b) | to assist Board oversight of the external auditor's qualifications,
independence and performance; |
| (c) | to assist Board oversight of Pembina's compliance with legal
and regulatory requirements; |
| (d) | to assist Board oversight of Pembina's internal audit function; |
| (e) | to increase the transparency, credibility and objectivity
of financial reporting; |
| (f) | to enhance communication between management, the external
auditors, and the Board; and |
| (g) | to discuss policies with respect to risk assessment and management. |
| II. | MEMBERSHIP AND POLICIES |
The Board, based on recommendation from the
Governance Committee, will appoint members of the Audit Committee. Each member shall serve until his or her successor is appointed,
unless he or she shall resign or be removed by the Board or he or she shall otherwise cease to be a director of the Corporation.
The Audit Committee must be composed of not
less than three (3) members of the Board, each of whom must be independent and financially literate pursuant to the Corporation's
Standards for Director Independence. In addition, at least one member must be an "audit committee financial expert" within
the meaning of that term under the United States Securities Exchange Act of 1934, as amended, and the rules adopted by the United
States Securities and Exchange Commission thereunder. The Board Chair, in consultation with the Governance Committee, will select
the Chair of the Audit Committee from amongst its members.
The Audit Committee may at any time retain
outside financial, legal or other advisors as it determines necessary to carry out its duties, at the expense of Pembina. Pembina
shall provide for appropriate funding, as determined by the Audit Committee in its capacity as a committee of the Board, for payment
of: (i) compensation to the external auditor for the purpose of preparing or issuing an audit report or performing other audit,
review or attest services for Pembina, (ii) compensation to any advisors employed by the Audit Committee, and (iii) ordinary administrative
expenses of the Audit Committee that are necessary or appropriate in carrying out its duties.
In discharging its duties under this Charter,
the Audit Committee may investigate any matter brought to its attention and will have access to all books, records, facilities
and personnel, may conduct meetings or interview any officer or employee, the Corporation's legal counsel, external auditors and
consultants, and may invite any such persons to attend any part of any meeting of the Audit Committee.
The Audit Committee has neither the duty nor
the responsibility to conduct audit, accounting or legal reviews, or to ensure that the Corporation's financial statements are
complete, accurate and in accordance with Canadian generally accepted accounting principles applicable to publicly accountable
enterprises, which is within the framework of International Financial Reporting Standards as issued by the International Accounting
Standards Board incorporated into the Canadian Institute of Chartered Accountants (CICA) Handbook - Part 1 (referred to as "GAAP");
rather, management is responsible for the financial reporting process, internal review process, and the preparation of the Corporation's
financial statements in accordance with GAAP, and the Corporation's external auditors are responsible for auditing those financial
statements.
The Audit Committee, in its capacity as a committee
of the Board and subject to the rights of holders of the Corporation's shares ("Shareholders") and applicable law, is
directly responsible for the overseeing the relationship of the external auditor firm with Pembina, including the appointment,
termination, compensation, retention and oversight of the work of the external auditor engaged by the Corporation (including resolution
of disagreements or disputes between management and the auditor regarding financial reporting) for the purpose of preparing or
issuing an audit report or performing other audit, review or attest services for Pembina. The Audit Committee's selection of the
external auditor is subject to approval by the Shareholders.
The external auditor will report directly to
the Audit Committee.
The Audit Committee must pre-approve, subject
to any de minimis exemption available under applicable laws, the appointment of the external auditor to provide all audit
services and permitted non-audit services to be provided by the external auditor, including the terms thereof and the fees related
thereto. If desired, the Audit Committee may establish detailed policies and procedures for pre-approval of the provision of audit
services and permitted non-audit services by the external auditor. The Audit Committee may delegate this ability to one or more
members of the Audit Committee to the extent permitted by applicable law, provided that any pre-approvals granted pursuant to any
such delegation must be detailed as to the particular service to be provided, may not delegate Audit Committee responsibilities
to management of Pembina, and must be reported to the full Audit Committee at its next scheduled meeting.
The Audit Committee will consider whether the
provision of any non-audit services is compatible with the auditor's independence.
The Audit Committee will obtain and review
at least annually a written report by the external auditor setting out the auditor's internal quality-control procedures, any material
issues raised by the most recent internal quality-control review, or peer review, of the firm, or by any inquiry or investigation
by governmental or professional authorities, within the preceding five years, respecting one or more independent audits carried
out by the firm, and any steps taken to deal with any such issues.
The Audit Committee will review and discuss
with the external auditor all relationships that the external auditor and its affiliates have with Pembina and its affiliates in
order to determine the external auditor's independence, including, without limitation:
| (a) | requesting, receiving and reviewing, on a periodic basis
but at least annually, a formal written statement from the external auditor delineating all relationships that may reasonably
be thought to bear on the independence of the external auditor with respect to Pembina; |
| (b) | discussing with the external auditor any disclosed relationships
or services that the external auditor believes may affect the objectivity and independence of the external auditor; and |
| (c) | recommending that the Board take appropriate action in response
to the external auditor's report to satisfy itself of the external auditor's independence. |
In addition, in respect of the external auditor,
the Audit Committee will:
| (a) | consider whether the external auditor's quality controls
are compatible with the auditor's independence; |
| (b) | evaluate, at least annually, the auditor's qualifications,
performance and independence; |
| (c) | ensure the rotation of partners on the audit engagement team
of the external auditor in accordance with applicable law; |
| (d) | review and evaluate the lead partner of the external auditor; |
| (e) | periodically consider whether, in order to assure continuing
external auditor independence, it is appropriate to adopt a policy of rotating the external auditing firm on a regular basis;
and |
| (f) | set clear hiring policies for Pembina regarding partners
and employees and former partners and employees of the present and former external auditor of the Corporation (it being understood
that partners and employees and former partners and employees of the present and former external auditor may not be hired by the
Corporation without the prior approval of the Audit Committee); and |
| (g) | present its conclusions with respect to the external auditor
to the Board on at least an annual basis. |
The Audit Committee, in its capacity as a committee
of the Board will carry out the following responsibilities with regard to the internal audit function:
| (a) | review with management and the head of the internal audit
the charter, activities, staffing, and organizational structure of internal audit; |
| (b) | have final authority to review and approve the annual audit
plan and all major changes to the plan; and |
| (c) | ensure there are no unjustified restrictions or limitations,
and review and concur in the appointment, replacement, or dismissal of the head of internal audit; and |
| (d) | on a regular basis, meet separately with the head of internal
audit to discuss any matters that the Audit Committee or the head of internal audit believes should be discussed privately. |
| C | Oversight of Financial Statements and Internal Controls and
Procedures |
The Audit Committee will meet with management
and the external auditor to review and discuss annual and quarterly financial statements and management's discussion and analyses
and earnings press releases. The Audit Committee will review and discuss the financial information to be included in public disclosure
documents and determine whether to recommend to the Board that the financial statements be presented to the Board and to the Shareholders
and included in public disclosure documents. In connection with these procedures, the Audit Committee will, as applicable and without
limitation:
| (a) | review and discuss with management the type and presentation
of information to be included in earnings press releases, paying particular attention to any use of "pro forma" or "adjusted"
non-GAAP information, as well as financial information and earnings guidance provided by Pembina to analysts and rating agencies.
Such discussion may be done generally (consisting of discussing the types of information to be disclosed and the types of presentations
to be made); |
| (b) | review with management and the external auditor any material
correspondence with regulators or government agencies and any employee complaints or published reports which raise issues regarding
the Corporation's financial statements or accounting policies; |
| (c) | meet periodically with the appropriate legal advisors to
review material legal issues, the Corporation's compliance policies and any material reports or inquiries received from regulators
or governmental agencies; |
| (d) | will review major issues regarding accounting principles
and financial statement presentations; |
| (e) | review analyses prepared by, and discuss with, management
and the external auditor with respect to significant financial reporting issues and judgments made in connection with the preparation
of Pembina's financial statements, including any significant changes in Pembina's selection or application of accounting principles,
any major issues as to the adequacy of Pembina's internal controls and any special steps adopted in light of material control
deficiencies; |
| (f) | review and discuss with management and the external auditor
the effect of regulatory and accounting initiatives, as well as off-balance sheet structures, on Pembina's financial statements; |
| (g) | review with the Chief Financial Officer (the "CFO")
and the external auditor any changes in accounting policies as well as any other significant financial reporting issues; and |
| (h) | review Pembina's financial reporting procedures and policies
to ensure compliance with all legal and regulatory requirements and to investigate any non-adherence to those procedures and policies. |
In addition, the Audit Committee will review
and discuss a report from the external auditor at least quarterly regarding:
| (a) | all critical accounting policies and practices to be used; |
| (b) | all alternative treatments of financial information within
GAAP that have been discussed with management, including the ramifications of the use of such alternative disclosures and treatments,
and the treatment preferred by the external auditor; and |
| (c) | other material written communications between the external
auditor and management, such as any management letter or schedule of unadjusted differences. |
In connection with its review of the annual
audited financial statements and quarterly financial statements, the Audit Committee will also review the process for the CEO and
CFO certifications with respect to the financial statements and Pembina's disclosure controls and internal controls, including
any material deficiencies or changes in those controls. The Audit Committee will review the disclosures made to the Audit Committee
by the Corporation's CEO and CFO during their certification process. In particular, the Audit Committee will review with the CEO,
CFO, internal auditor and external auditor: (i) all significant deficiencies and material weaknesses in the design or operation
of Pembina's internal control over financial reporting that could adversely affect Pembina's ability to record, process, summarize
and report financial information required to be disclosed by the Corporation in the reports that it files or submits under applicable
securities laws, within the required time periods, and (ii) any fraud, whether or not material, that involves management of Pembina
or other employees who have a significant role in Pembina's internal control over financial reporting. In addition, the Audit Committee
will review with the CEO, CFO and the internal auditor Pembina's disclosure controls and procedures and at least annually will
review management's conclusions about the efficacy of disclosure controls and procedures, including any significant deficiencies
or material non-compliance with disclosure controls and procedures.
The Audit Committee will also annually discuss
with the external auditor whether they have become aware of any illegal acts in the course of the audit of Pembina's financial
statements.
In connection with the annual audit of Pembina's
financial statements, the Audit Committee will review with the external auditor:
| (a) | prior to commencement of the audit, plans, staffing and scope
for each annual audit; |
| (b) | the results of the annual audit and resulting opinion including
major issues regarding accounting and auditing principles and practices; |
| (c) | the adequacy of internal controls; |
| (d) | any audit problems or difficulties, including any restrictions
on the scope of the external auditor's activities or on access to requested information, any significant disagreements with management,
and management's response (such review should also include discussion of the responsibilities, budget and staffing of Pembina's
internal audit function). |
The Audit Committee will also establish a Whistleblower
Policy, including procedures for:
| (a) | the receipt, retention and treatment of complaints received
regarding accounting, internal accounting controls or auditing matters; and |
| (b) | the confidential, anonymous submission by employees of concerns
regarding questionable accounting or auditing matters. |
D Risk Management
The Audit Committee will review, discuss and
monitor Pembina's major financial risk exposures, including commodity and hedging risk, and risk management and assessment policies,
and the steps taken by management to monitor and control those exposures. In respect of these responsibilities, the Audit Committee
must discuss guidelines and policies to govern the process by which risk assessment and management is undertaken and may develop
such guidelines or policies that it deems necessary or desirable, or direct that any such guidelines or policies be developed under
its supervision.
E Additional Duties and Responsibilities
The Audit Committee will also:
| (a) | review the appointment of the CFO and any other key financial
executives who are involved in the financial reporting process; |
| (b) | review and reassess the adequacy of this Charter annually
and submit any proposed changes to the Governance Committee for approval; |
| (c) | review Pembina's asset retirement obligations and receive
reports related to future abandonment and decommissioning costs; |
| (d) | facilitate information sharing with other committees as required
to address matters of mutual interest or concern in respect of the Corporation's financial reporting; |
| (e) | report regularly to the Board on its activities, including
the results of meetings and reviews undertaken, any issues that arise with respect to quality or integrity of the Corporation's
financial statements, Pembina's compliance with legal or regulatory requirements, the performance and independence of the external
audit, or the internal audit function and any associated recommendations; |
| (f) | receive and review reports from the Corporate Pension Committee
at Pembina and to recommend or approve changes as appropriate with respect to risk management of pension assets and liabilities,
actuarial valuation as required by statute, the Statement of Investment Policies and Procedures, funding policy and corporate
performance for the pension plans; |
| (g) | jointly with the Human Resources and Compensation Committee,
report on the status of the pension plans to the Board at least annually; |
| (h) | the Audit Committee shall meet separately with the internal
auditor, periodically as the Audit Committee may deem appropriate, to consider any matter that the Audit Committee or internal
auditor believes should be brought to the attention of the Board, the Audit Committee or the Shareholders; |
| (i) | the Audit Committee shall meet separately with the external
auditor, periodically as the Audit Committee may deem appropriate, to consider any matter that the Audit Committee or external
auditor believes should be brought to the attention of the Board, the Audit Committee or the Shareholders; and |
| (j) | the Audit Committee shall meet separately with the Corporation's
management, periodically as the Audit Committee may deem appropriate, to consider any matter that the Audit Committee or management
believes should be brought to the attention of the Board, the Audit Committee or the Shareholders. |
In addition, The Audit Committee will perform
such other functions as are assigned by law and the Corporation's by-laws, and on the instructions of the Board.
The Audit Committee will meet quarterly, or
more frequently at the discretion of the members of the Audit Committee, as circumstances require.
Notice of each meeting of the Audit Committee
will be given to each member and to the internal and external auditors, who are entitled to attend each meeting of the Audit Committee.
The notice will:
| (a) | be in writing (which may be communicated by fax or email); |
| (b) | be accompanied by an agenda that states the nature of the
business to be transacted at the meeting in reasonable detail; |
| (c) | to the extent practicable, be accompanied by copies of documentation
to be considered at the meeting; and |
| (d) | be given at least 48 hours preceding the time stipulated
for the meeting, unless notice is waived by the committee members. |
A quorum for a meeting of the Audit Committee
is a majority of the members present in person or by telephone.
If the Chair is not present at a meeting of
the Audit Committee, a Chair will be selected from among the members present. The Chair will not have a second or deciding vote
in the event of an equality of votes.
At each meeting, the Audit Committee will meet
in-camera, without management or internal or external auditors present, and will meet in separate sessions with each of the head
of internal audit and the lead partner of the external auditor at least annually.
The Audit Committee may invite others to attend
any part of any meeting of the Audit Committee as it deems appropriate. This includes other directors, members of management, any
employee, the Corporation's legal counsel, external auditors and consultants.
Minutes will be kept of all meetings of the
Audit Committee. The minutes will include copies of all resolutions passed at each meeting, will be maintained with the Corporation's
records, and will be available for review by members of the Audit Committee, the Board, and the external auditor.
The Audit Committee shall review and reassess
the adequacy of this Charter at least annually or otherwise, as it deems appropriate, and propose recommended changes to the Governance
Committee.
The Audit Committee shall report regularly
to the Board about any issues that arise with respect to the quality or integrity of the Corporation's financial statements, Pembina's
compliance with legal or regulatory requirements, the performance and independence of the external auditor, or the internal audit
function.
The Audit Committee's performance shall be
evaluated annually by the Governance Committee and the Board as part of the Board assessment process established by the Governance
Committee and the Board.
Exhibit 99.2
Pembina
Pipeline Corporation
MANAGEMENT'S DISCUSSION
AND ANALYSIS
The following management's
discussion and analysis ("MD&A") of the financial and operating results of Pembina Pipeline Corporation ("Pembina"
or the "Company") is dated February 26, 2015 and is supplementary to, and should be read in conjunction with, Pembina's
audited consolidated annual financial statements for the years ended December 31, 2014 and 2013 ("Consolidated Financial
Statements"). All dollar amounts contained in this MD&A are expressed in Canadian dollars unless otherwise noted.
Management is responsible
for preparing the MD&A. This MD&A has been reviewed and recommended by the Audit Committee of Pembina's Board of Directors
and approved by its Board of Directors.
This MD&A contains
forward-looking statements (see "Forward-Looking Statements & Information"). This report also refers to net revenue,
operating margin, earnings before interest, taxes, depreciation and amortization ("EBITDA"), adjusted cash flow from
operating activities (and cash flow from operating activities per common share and adjusted cash flow from operating activities
per common share), and total enterprise value, which are financial measures that are not defined by Generally Accepted Accounting
Principles ("GAAP"). Pembina's methods of calculating these financial measures may not be directly comparable to that
of other companies. Pembina considers these non-GAAP financial measures to provide useful information to both management and investors
in measuring Pembina's financial performance and financial condition. For more information about the measures which are not defined
by GAAP, including reconciliation to the most directly comparable GAAP measure, see "Non-GAAP and Additional GAAP Measures."
The following is a list of
abbreviations that may be used in this MD&A:
Measurement |
Other |
|
bpd |
barrels per day |
B.C. |
British
Columbia |
mbpd |
thousands of barrels per day |
DRIP |
Premium
Dividend™ and Dividend Reinvestment Plan |
mmbbls |
millions
of barrels |
IFRS |
International
Financial Reporting Standards |
mboe/d |
thousands
of barrels of oil equivalent per day |
NGL |
Natural
gas liquids |
MMcf/d |
millions
of cubic feet per day |
U.S. |
United
States |
bcf/d |
billions
of cubic feet per day |
WCSB |
Western
Canadian Sedimentary Basin |
km |
kilometre |
|
|
About
Pembina
Calgary-based Pembina
Pipeline Corporation is a leading transportation and midstream service provider that has been serving North America's energy industry
for over 60 years. Pembina owns and operates an integrated system of pipelines that transport various hydrocarbon liquids including
conventional and synthetic crude oil, heavy oil and oil sands products, condensate (diluent) and NGL produced in western Canada
and ethane produced in North Dakota. The Company also owns and operates gas gathering and processing facilities and an oil and
NGL infrastructure and logistics business. With facilities strategically located in western Canada and in NGL markets in eastern
Canada and the U.S., Pembina also offers a full spectrum of midstream and marketing services that spans across its operations.
Pembina's integrated assets and commercial operations enable it to offer services needed by the energy sector along the hydrocarbon
value chain.
Pembina is a trusted
member of the communities in which it operates and is committed to generating value for its investors by running its businesses
in a safe, environmentally responsible manner that is respectful of community stakeholders.
Pembina's goal is to
provide highly competitive and reliable returns to investors through monthly dividends on its common shares while enhancing the
long-term value of its securities. To achieve this, Pembina's strategy is to:
| · | Preserve
value by providing safe, responsible, cost-effective and reliable services; |
| · | Diversify
the Company's asset base along the hydrocarbon value chain by providing integrated service
offerings which enhance profitability; |
| · | Pursue
projects or assets that are expected to generate increased cash flow per share and capture
long-life, economic hydrocarbon reserves; and |
| · | Maintain
a strong balance sheet through the application of prudent financial management to all
business decisions. |
Pembina is structured
into four businesses: Conventional Pipelines, Oil Sands & Heavy Oil, Gas Services and Midstream, which are described in their
respective sections of this MD&A.
Pembina Pipeline Corporation
Financial & Operating Overview
| |
3 Months Ended
December
31
(unaudited) | |
12 Months Ended
December 31 |
($ millions, except where noted) | |
2014 | | |
2013 | | |
2014 | | |
2013 | |
Conventional Pipelines throughput (mbpd) | |
| 612 | | |
| 500 | | |
| 575 | | |
| 492 | |
Oil Sands & Heavy Oil contracted capacity (mbpd) | |
| 880 | | |
| 880 | | |
| 880 | | |
| 880 | |
Gas Services average volume processed (mboe/d) net to Pembina(1) | |
| 97 | | |
| 66 | | |
| 86 | | |
| 53 | |
Midstream NGL sales volume (mbpd) | |
| 130 | | |
| 122 | | |
| 119 | | |
| 109 | |
Total volume (mbpd) | |
| 1,719 | | |
| 1,568 | | |
| 1,660 | | |
| 1,534 | |
Revenue | |
| 1,259 | | |
| 1,282 | | |
| 6,069 | | |
| 5,006 | |
Net revenue(2) | |
| 304 | | |
| 379 | | |
| 1,469 | | |
| 1,306 | |
Operating expenses | |
| 117 | | |
| 101 | | |
| 401 | | |
| 356 | |
Realized gain (loss) on commodity-related derivative financial instruments | |
| 8 | | |
| (3 | ) | |
| 10 | | |
| (1 | ) |
Operating margin(2) | |
| 195 | | |
| 275 | | |
| 1,078 | | |
| 949 | |
Depreciation and amortization included in operations | |
| 62 | | |
| 42 | | |
| 216 | | |
| 163 | |
Unrealized gain (loss) on commodity-related derivative financial instruments | |
| 11 | | |
| 2 | | |
| 14 | | |
| 7 | |
Gross profit | |
| 144 | | |
| 235 | | |
| 876 | | |
| 793 | |
General and administrative expenses | |
| 28 | | |
| 43 | | |
| 156 | | |
| 132 | |
Other expenses | |
| 2 | | |
| 1 | | |
| 18 | | |
| 1 | |
Net finance costs (income) | |
| (9 | ) | |
| 55 | | |
| 130 | | |
| 166 | |
Share of loss of investment in equity accounted investees, net of tax | |
| | | |
| | | |
| 22 | | |
| | |
Current tax expense | |
| 28 | | |
| 19 | | |
| 103 | | |
| 38 | |
Deferred tax expense | |
| 11 | | |
| 22 | | |
| 64 | | |
| 105 | |
Earnings | |
| 84 | | |
| 95 | | |
| 383 | | |
| 351 | |
Earnings per common share – basic (dollars) | |
| 0.22 | | |
| 0.29 | | |
| 1.07 | | |
| 1.12 | |
Earnings per common share – diluted (dollars) | |
| 0.22 | | |
| 0.29 | | |
| 1.06 | | |
| 1.12 | |
EBITDA(2) | |
| 170 | | |
| 235 | | |
| 920 | | |
| 832 | |
Cash flow from operating activities | |
| 196 | | |
| 208 | | |
| 800 | | |
| 685 | |
Cash flow from operating activities per common share – basic (dollars)(2) | |
| 0.58 | | |
| 0.66 | | |
| 2.45 | | |
| 2.23 | |
Adjusted cash flow from operating activities(2) | |
| 164 | | |
| 185 | | |
| 777 | | |
| 725 | |
Adjusted cash flow from operating activities per common share – basic (dollars)(2) | |
| 0.49 | | |
| 0.59 | | |
| 2.38 | | |
| 2.36 | |
Common share dividends declared | |
| 146 | | |
| 132 | | |
| 563 | | |
| 507 | |
Dividends per common share (dollars) | |
| 0.44 | | |
| 0.42 | | |
| 1.72 | | |
| 1.65 | |
Preferred share dividends declared | |
| 10 | | |
| 5 | | |
| 31 | | |
| 5 | |
Capital expenditures | |
| 483 | | |
| 275 | | |
| 1,412 | | |
| 880 | |
Total enterprise value ($ billions)(2) | |
| 18 | | |
| 15 | | |
| 18 | | |
| 15 | |
| (1) | Gas Services average volume processed converted to mboe/d from MMcf/d at 6:1 ratio. |
| (2) | Refer to "Non-GAAP and Additional GAAP Measures." |
Revenue in 2014 was $6.1 billion compared to $5 billion
in 2013 while net revenue for 2014 was $1.5 billion compared to $1.3 billion during 2013. The increase in net revenue was largely
due to the Company's Conventional Pipelines and Gas Services businesses which generated increases in net revenue of almost 25 percent
and 36 percent, respectively, during 2014 compared to the prior year. Strong performance in each of these businesses was driven
by new assets and facilities being placed into service as well as increased volumes on legacy assets.
Revenue for the fourth quarter of 2014 was $1.3 billion,
essentially unchanged from the fourth quarter of 2013. Net revenue decreased by 20 percent in the fourth quarter of 2014 to
$304 million from $379 million during the same period of 2013. This decrease was primarily due to the decline in commodity
prices, which resulted in lower price differentials and an inventory write-down of $38 million in the Company's
Midstream business. Partially offsetting net revenue was the Company's Conventional Pipelines business, which generated an
increase of approximately 32 percent in net revenue in the fourth quarter of 2014 compared to the same period of 2013 due to
contributions from the Phase I crude oil, condensate and natural gas liquids pipeline capacity expansions which were
completed in December 2013 (the "Phase I Expansions"). In addition, start-up at the new Resthaven Facility and
strong performance at the Company's Saturn I Facility helped drive an increase of over 39 percent in Gas Services' net
revenue in the fourth quarter of 2014 compared to the same period of 2013.
Pembina Pipeline Corporation
Operating expenses were $401 million for the full-year
in 2014 and $117 million during the fourth quarter compared to $356 million and $101 million during the same periods of 2013. The
increase in operating expenses for the year and fourth quarter ended December 31, 2014 was primarily the result of new in-service
assets, offset by a reduction in operating expenses in the Company's Midstream business resulting from Pembina's disposition of
certain of its non-core trucking-related assets recognized in the second quarter of 2014.
During 2014, operating margin increased almost 14 percent
to $1.1 billion compared to $949 million for the full-year of 2013. The year-over-year increase was primarily because of strong
performance in the Company's Conventional Pipelines and Gas Services businesses, as well as the Midstream business in the first
nine months of the year. Operating margin totalled $195 million during the fourth quarter of 2014, down from $275 million in the
same period last year. This decrease was largely related to the Midstream business, which was impacted by weak commodity prices
during the last several months of 2014, as discussed above.
Depreciation and amortization included in operations during
2014 was $216 million compared to $163 million for the full-year of 2013. This increase was partially due to depreciation and amortization
of $40 million stemming from the growth in Pembina's asset base since 2013. This includes the acquisition of the Vantage pipeline
system (the "Vantage Pipeline") which increased the Company's asset base by seven percent and contributed $4 million
in depreciation expense since the closing of the acquisition (discussed below). In addition, Pembina recognized $13 million in
accelerated depreciation associated with the Company's non-core trucking-related assets in the second quarter of 2014, as well
as a reduced recovery recognized in 2014 compared to 2013 with respect to the re-measurement of the decommissioning provision due
to changes in discount rates. In the fourth quarter of 2014, depreciation and amortization included in operations rose to $62 million
compared to $42 million during the same period in 2013 as a result of the same factors which impacted the full-year results noted
above.
Gross profit for 2014 was $876 million compared to $793
million for 2013. This 10 percent year-over-year increase was driven by strong operating performance in 2014 as previously mentioned.
In the fourth quarter of 2014, decreased operating margin coupled with increased depreciation and amortization included in operations
contributed to gross profit of $144 million, a 39 percent reduction compared to $235 million in the same period in 2013.
For the year ended December 31, 2014, Pembina incurred
general and administrative expenses (excluding corporate depreciation and amortization) of $156 million compared to $132 million
during 2013. The increase was largely due to higher salaries, benefits, incentives and rental expenses related to the addition
of new employees and consultants to support Pembina's growth. General and administrative expenses (excluding corporate depreciation
and amortization) were $28 million in the fourth quarter of 2014 compared to $43 million in the same period of 2013. This decrease
was primarily due to lower share-based payment expenses which were partially offset by an increase in salaries, benefits and rental
expenses. The decrease in share-based payment expense in the fourth quarter of 2014 is correlated with the Company's share price,
which decreased during that period compared to an increase in the Company's share price in the fourth quarter of 2013. Every $1
change in share price is expected to change Pembina's annual share-based incentive expense by approximately $1 million.
Pembina
Pipeline Corporation
Pembina generated EBITDA of $920 million in 2014 ($976
million prior to an inventory write-down and other expenses, as discussed below), 11 percent higher than EBITDA of $832 million
in 2013. The increase in EBITDA was due to higher operating margin, partially offset by an inventory write-down of $38 million
(2013: nil) in the Company's Midstream business recorded in the fourth quarter of the year and other expenses of $18 million (2013:
$1 million). Other expenses increased year-over-year primarily due to a net impairment for non-recoverable costs associated with
the Cornerstone pipeline project (which did not proceed), arbitration settlement costs and acquisition-related expenses for the
Vantage Pipeline. EBITDA was $170 million during the fourth quarter of 2014, down from $235 million during the fourth quarter of
2013 due to decreased operating margin, which was partially offset by reduced general and administrative and other expenses. EBITDA
for the fourth quarter of 2014 before the $38 million inventory write-down was $208 million.
Full-year net finance costs in 2014 totalled $130 million,
down from $166 million in 2013. Net finance costs were lower in 2014 primarily due to a $30 million decrease in the loss on the
revaluation of the conversion feature of the series E and F convertible debentures resulting from fewer debentures outstanding
and lower prices for these securities. A $9 million decrease in interest expense on the convertible debentures as a result of conversions
during the year and foreign exchange gains and other of $3 million also contributed to lower net finance costs. These changes were
partially offset by an increase of $8 million in the loss on fair value of non-commodity-related derivative financial instruments
and increased interest expense of $2 million on loans and borrowings, reflecting increased borrowing levels, net of capitalized
borrowing costs.
Income tax expense for 2014 totalled $167 million, including
current tax of $103 million and deferred tax of $64 million, compared to income tax expense of $143 million in 2013, including
current tax of $38 million and deferred tax of $105 million. The current tax rose in 2014 primarily as a result of taxable income
exceeding losses and deductions available for carry-over in certain of Pembina subsidiary corporations. Income tax expense was
$39 million for the fourth quarter of 2014, including current tax of $28 million and deferred tax of $11 million, compared to $41
million, including current tax of $19 million and deferred tax of $22 million in the same period of 2013 for the same reasons noted
above.
The Company's earnings increased to $383 million in
2014 compared to $351 million in 2013. This was largely due to higher gross profit in the Conventional Pipelines, Gas Services
and Midstream businesses and lower finance costs, which were offset by increased general and administrative expenses, other expenses,
share of loss from equity accounted investees and income tax expense. Despite increased earnings, earnings per share decreased
from $1.12 per common share in 2013 to $1.07 per common share in 2014, largely because of the increased weighted average number
of common shares outstanding due to shares issued in the following ways: upon conversion of convertible debentures; under the dividend
reinvestment component of Pembina's Premium Dividend™ and Dividend Reinvestment Plan; and in association with the Vantage
Pipeline acquisition. Also offsetting the increase in earnings was the Company's share of loss from equity accounted investees,
which included accelerated depreciation of $25 million for certain out-of-service assets at Pembina's Fort Saskatchewan ethylene
storage facility which was recorded in the third quarter of 2014. The Company's earnings decreased to $84 million ($0.22 per common
share) during the fourth quarter of 2014 compared to $95 million ($0.29 per common share) during the fourth quarter of 2013 largely
due to reduced gross profit in the Company's Midstream business, higher taxes and depreciation and amortization included in operations
in 2014.
Cash flow from operating activities
for the year ended December 31, 2014 was $800 million ($2.45 per common share) compared to $685 million ($2.23 per common share)
during 2013. The increase was mainly due to higher earnings as well as a decreased change in non-cash working capital in 2014 compared
to 2013 and partially offset by increased taxes paid. Cash flow from operating activities was $196 million ($0.58 per common share)
during the fourth quarter of 2014 compared to $208 million ($0.66 per common share) for the same period last year, with the decrease
primarily due to lower fourth quarter earnings in 2014.
Pembina
Pipeline Corporation
Adjusted cash flow from operating activities in 2014
was $777 million ($2.38 per common share) compared to $725 million ($2.36 per common share) during 2013. The increase was largely
related to higher operating margin offset by increased current taxes, share-based payment expenses and preferred share dividends
declared and paid. Adjusted cash flow from operating activities for the fourth quarter of 2014 was $164 million ($0.49 per common
share) compared to $185 million ($0.59 per common share) during the fourth quarter of 2013. This decrease was primarily due to
lower operating margin, increased current taxes and preferred share dividends declared and paid.
Operating Results
| |
3
Months Ended December 31 (unaudited) | | |
12
Months Ended December 31 | |
| |
2014 | |
2013 | |
2014 | |
2013 |
($ millions) | |
Net Revenue(1)
| |
Operating Margin(1)
| |
Net Revenue(1)
| |
Operating Margin(1)
| |
Net Revenue(1)
| |
Operating Margin(1)
| |
Net Revenue(1)
| |
Operating Margin(1)
|
Conventional Pipelines | |
| 146 | | |
| 74 | | |
| 111 | | |
| 59 | | |
| 513 | | |
| 302 | | |
| 411 | | |
| 251 | |
Oil Sands & Heavy Oil | |
| 52 | | |
| 34 | | |
| 53 | | |
| 34 | | |
| 204 | | |
| 136 | | |
| 195 | | |
| 131 | |
Gas Services | |
| 46 | | |
| 29 | | |
| 33 | | |
| 21 | | |
| 165 | | |
| 107 | | |
| 121 | | |
| 78 | |
Midstream | |
| 61 | | |
| 57 | | |
| 183 | | |
| 161 | | |
| 587 | | |
| 528 | | |
| 580 | | |
| 486 | |
Corporate | |
| (1 | ) | |
| 1 | | |
| (1 | ) | |
| | | |
| | | |
| 5 | | |
| (1 | ) | |
| 3 | |
Total | |
| 304 | | |
| 195 | | |
| 379 | | |
| 275 | | |
| 1,469 | | |
| 1,078 | | |
| 1,306 | | |
| 949 | |
(1) Refer to "Non-GAAP and Additional
GAAP Measures."
Conventional Pipelines
| |
3
Months Ended
December 31 (unaudited) | | |
12 Months Ended
December 31 | |
($ millions, except where noted) | |
2014 | | |
2013 | | |
2014 | | |
2013 | |
Average throughput (mbpd) | |
| 612 | | |
| 500 | | |
| 575 | | |
| 492 | |
Revenue | |
| 146 | | |
| 111 | | |
| 513 | | |
| 411 | |
Operating expenses | |
| 72 | | |
| 52 | | |
| 211 | | |
| 162 | |
Realized gain on commodity-related derivative financial instruments | |
| | | |
| | | |
| | | |
| 2 | |
Operating margin(1) | |
| 74 | | |
| 59 | | |
| 302 | | |
| 251 | |
Depreciation and amortization included in operations | |
| 17 | | |
| 7 | | |
| 42 | | |
| 12 | |
Unrealized (loss) gain on commodity-related derivative financial instruments | |
| (2 | ) | |
| (1 | ) | |
| | | |
| 1 | |
Gross profit | |
| 55 | | |
| 51 | | |
| 260 | | |
| 240 | |
Capital expenditures | |
| 232 | | |
| 126 | | |
| 628 | | |
| 325 | |
| (1) | Refer to "Non-GAAP and Additional GAAP Measures." |
Business Overview
Pembina's Conventional Pipelines business comprises a well-maintained
and strategically located 8,800 km pipeline network that transports hydrocarbon products and extends across much of Alberta and
parts of B.C. In addition, the recently acquired Vantage Pipeline transports specification ethane from gas plants in North Dakota
and Saskatchewan to Empress, Alberta, where it is delivered onto a third-party pipeline. The primary objectives of this business
are to provide safe, responsible and reliable transportation services for customers, pursue opportunities for increased throughput,
and maintain and/or grow sustainable operating margin on invested capital by capturing incremental volumes, expanding its pipeline
systems, managing revenue and following a disciplined approach to its operating expenses.
Pembina
Pipeline Corporation
Operational Performance
Conventional Pipelines' throughput averaged 575 mbpd for
2014, up 17 percent compared to 492 mbpd for 2013. During the fourth quarter of 2014, throughput averaged a record 612 mbpd. This
represents an increase of approximately 22 percent compared to the same period of 2013, when average throughput was 500 mbpd.
These increases were primarily due to Pembina's Phase
I Expansions, which were placed into service in December 2013 and which allowed for the receipt of higher volumes at Pembina's
existing connections and truck terminals. As a result of the expansions, volumes on Pembina's Peace Pipeline increased almost 69
mbpd or 32 percent over 2014 as compared to 2013. The Company also placed several new connections into service during 2014, which
further contributed to increased throughput on its systems. In addition, during the fourth quarter of 2014, Pembina began transporting
volumes on the Vantage Pipeline. As a result of these factors, in December of 2014, Pembina reached a record average monthly volume
performance of 631 mbpd.
Financial Performance
Conventional Pipelines'
revenue in 2014 was $513 million, 25 percent higher compared to $411 million for 2013. During
the fourth quarter of 2014, revenue was $146 million, almost 32 percent higher than the $111 million generated in the same quarter
of the previous year. The increases during the 2014 periods were primarily due to the Phase I Expansions noted above, strong volumes
from existing and new connections, including Pembina's Saturn I and Resthaven facilities and selective toll increases implemented
in 2014. The addition of the Vantage Pipeline also had a positive impact on revenue during the fourth quarter.
Operating expenses were $211 million for 2014 compared
to $162 million in 2013 and $72 million in the fourth quarter of 2014 compared to $52 million in the same period of the prior year.
On a full-year basis, higher operating expenses in 2014 were largely driven by increases in repairs and maintenance, integrity
costs, labour, property taxes as well as increased insurance costs related to additional in-service assets. The increase in the
fourth quarter of 2014 was partially due to maintenance costs incurred on the Company's Peace and Western systems which were incremental
to Pembina's ongoing pipeline maintenance and integrity management program. Further contributing to the increase in operating expenses
in the fourth quarter of 2014, as compared to the same period in 2013, were increased labour costs due to additional staff and
vehicle units within the Conventional Pipelines business.
As a result of higher revenue, which was partially offset
by an increase in operating expenses, operating margin was $302 million for the full-year of 2014 and $74 million for the fourth
quarter, 20 percent and 25 percent higher, respectively, than the $251 million and $59 million recorded for the commensurate periods
of 2013.
Depreciation and amortization included in operations for
the year ended December 31, 2014 was $42 million compared to $12 million for 2013. During the fourth quarter of 2014, depreciation
and amortization included in operations was $17 million compared to $7 million during the same period of the prior year. The increase
for the full-year and fourth quarter of 2014 resulted from additional in-service assets associated with the Phase I Expansions
and the Vantage Pipeline, as well as a reduction in the recovery recognized in 2014 compared to 2013 with respect to the re-measurement
of the decommissioning provision due to changes in discount rates.
Pembina
Pipeline Corporation
Gross profit was $260 million and $55 million for the year and
three months ended December 31, 2014, respectively, compared to $240 million and $51 million during the same periods of 2013. These
increases were due to higher operating margin, which was partially offset by increased depreciation and amortization included in
operations, as discussed above.
Capital expenditures totalled $628 million and $232 million
for the full-year and fourth quarter of 2014, respectively, compared to $325 million and $126 million for the same periods of 2013.
The majority of the spending in 2014 related to Pembina's pipeline expansion projects which are described throughout this document.
New Developments
As announced in September 2014, Pembina is increasing
the size of its Phase III Pipeline Expansion program (the "Phase III Expansion") due to strong customer demand throughout
the year. Pembina now plans to construct two pipelines between Fox Creek and Namao, Alberta (one 16-inch diameter and one 24-inch
diameter) with an initial combined capacity of 420 mbpd and an ultimate capacity of over 690 mbpd with the addition of midpoint
pump stations. Another segment was also added to the project between Wapiti and Kakwa, Alberta. These additions are expected to
increase capital spending for the mainline project from $2 billion to $2.44 billion. Subject to regulatory and environmental approvals,
Pembina expects the 16-inch and 24-inch diameter pipelines to be in-service between late-2016 and mid-2017. Pembina submitted its
regulatory application for both pipelines from Fox Creek to Namao on September 2, 2014.
The Phase III Expansion continued to receive positive
customer support through the latter part of 2014, with new contracts being signed for volumes. Pembina announced on September 10,
2014 that it had commitments for 289 mbpd and by September 25, 2014, the Company announced that it had secured additional agreements,
bringing total volume under contract to 307 mbpd. Since then, Pembina has received further commitments for an additional 55 mbpd,
despite challenging markets near the end of the year. Total committed volume is now 362 mbpd, or 86 percent of the initial 420
mbpd capacity.
Pembina placed its previously announced pipeline expansion
between Simonette and Fox Creek into service on August 6, 2014. With this expansion, Pembina expects to be able to deliver an initial
40 mbpd into its Peace Pipeline from Fox Creek into Edmonton once the crude oil and condensate Phase II Expansion, discussed below,
is complete. The 35 km segment from Lator to Simonette is also complete and came into service in January 2015 and construction
is progressing on the 35 km segment from Kakwa to Lator, with an anticipated April 2015 in-service date. To date, over 10 percent
of the overall Phase III Expansion program has been completed on time and on budget.
Also during 2014, Pembina was successful in its commercial
efforts to secure the majority of its existing crude and condensate volumes under long-term, firm-service contracts. In aggregate,
Pembina has now contracted 690 mbpd of crude oil, condensate and NGL through its recontracting efforts and through its Phase I,
II and III conventional pipeline expansions. Once the Phase III Expansion is brought into service, virtually all of the throughput
on Pembina's Peace and Northern systems will be under long-term, fee-for-service contracts.
With the completion of the Phase III Expansion, the Company
will have four pipelines in the corridor between Fox Creek and Namao which will allow for operational efficiencies and improved
quality management of product on its systems.
Work continued on the Phase II crude oil, condensate and
NGL expansions ("Phase II Expansions") over the fourth quarter of 2014. Pembina expects the crude oil and condensate
portion of the project to be mechanically complete in April 2015 and commissioned in the second quarter of 2015. Pembina has now
received all regulatory and environmental approvals for the NGL portion of the pipeline and expects this component of the project
to be in-service in the third quarter of 2015. Overall, the Phase II Expansions are continuing to track on budget.
Pembina
Pipeline Corporation
The Company is also continuing
to progress its previously announced plans to expand its presence in the Edson and Willesden Green areas of Alberta. Pembina expects
the Willesden Green pipeline lateral to be in-service in mid-2015 and, subject to
regulatory and environmental approvals, its pipeline laterals in the Edson area to be in-service mid-2016.
On November 11, 2014, Pembina announced that it has entered
into binding agreements to proceed with a $220 million expansion to its pipeline infrastructure in northeast British Columbia ("B.C.")
(the "NEBC Expansion"). The NEBC Expansion will transport condensate and NGL for various producers in the liquids-rich
Montney resource play.
The project entails the construction of approximately
160 km of up to 12-inch diameter pipeline with a base capacity of up to 75 mbpd that will parallel the Company's Blueberry pipeline
system northwest of Taylor, B.C. to the Highway/Blair Creek area of B.C. The project is underpinned by a long-term, cost-of-service
agreement with an anchor tenant. Subject to regulatory and environmental approvals, Pembina anticipates bringing the NEBC Expansion
on-stream in late-2017.
Subsequent to the acquisition of the Vantage pipeline
(see "Acquisition of Vantage Pipeline") and year end, on February 10, 2015, the Company announced that it has entered
into agreements to expand the Vantage pipeline system (the "Vantage Expansion") for an estimated capital cost of $85
million.
The Vantage Expansion entails increasing the Vantage Pipeline's
mainline capacity from 40 mbpd to 68 mbpd through the addition of mainline pump stations and the construction of a new 80 km, 8-inch
gathering lateral. The Vantage Expansion is supported by a long-term, fee-for-service agreement, with a substantial take-or-pay
component, and the gathering lateral is underpinned by a fixed return on invested capital agreement. Subject to regulatory
and environmental approvals, the Vantage Expansion is expected to be in-service in early-2016.
Oil Sands & Heavy Oil
|
3 Months Ended
December 31
(unaudited) |
12 Months Ended
December 31 |
($ millions, except where noted) |
2014 |
2013 |
2014 |
2013 |
Contracted capacity (mbpd) |
880 |
880 |
880 |
880 |
Revenue |
52 |
53 |
204 |
195 |
Operating expenses |
18 |
19 |
68 |
64 |
Operating margin(1) |
34 |
34 |
136 |
131 |
Depreciation and amortization included in operations |
4 |
2 |
17 |
17 |
Gross profit |
30 |
32 |
119 |
114 |
Capital expenditures |
6 |
5 |
41 |
38 |
| (1) | Refer to "Non-GAAP and Additional GAAP Measures." |
Business Overview
Pembina plays an important role in supporting Alberta's oil sands
and heavy oil industry. Pembina is the sole transporter of crude oil for Syncrude Canada Ltd. (via the Syncrude Pipeline) and Canadian
Natural Resources Ltd.'s Horizon Oil Sands operation (via the Horizon Pipeline) to delivery points near Edmonton, Alberta. Pembina
also owns and operates the Nipisi and Mitsue pipelines, which provide transportation for producers operating in the Pelican Lake
and Peace River heavy oil regions of Alberta, and the Cheecham Lateral, which transports synthetic crude to oil sands producers
operating southeast of Fort McMurray, Alberta. The Oil Sands & Heavy Oil business operates approximately 1,650 km of pipeline
and has 880 mbpd of capacity under long-term, extendible contracts, which provide for the flow-through of eligible operating expenses
to customers. As a result, operating margin from this business is primarily driven by the amount of capital invested and is predominantly
not sensitive to fluctuations in operating expenses or actual throughput.
Pembina
Pipeline Corporation
Financial Performance
In 2014, Oil Sands & Heavy Oil revenue was $204 million,
an increase from 2013 revenue of $195 million, largely due to higher interruptible volumes on the Nipisi Pipeline and revenue generated
by the Nipisi to Trans Mountain Pipeline connection. Higher operating expenses related to scheduled integrity work in the first
three quarters of 2014, which were recovered under Pembina's contractual arrangements with its customers, also contributed to the
increase in revenue. For the fourth quarter of 2014, revenue was $52 million, essentially unchanged
compared to the fourth quarter of last year.
Operating expenses were $68 million for the year ended
December 31, 2014, compared to $64 million for 2013. Increased costs related to scheduled
integrity work and maintenance were the main contributors to the incremental operating expenses.
Operating expenses were $18 million during the fourth quarter of 2014 compared to $19 million for the same period of the prior
year.
Operating margin was $136 million and $34 million for
the year and three months ended December 31, 2014 compared to $131 million and $34 million, respectively, generated during the
same periods of 2013. The 2014 full-year increase was primarily due to greater interruptible volumes on the Nipisi Pipeline and
the incremental revenue from the Nipisi to Trans Mountain Pipeline connection as discussed above.
Depreciation and amortization included in operations during
the year and fourth quarter ended December 31, 2014 was $17 million and $4 million, compared to $17 million and $2 million, respectively
in the commensurate periods of the prior year. The quarterly increase was due to an increase in the useful life on the Nipisi and
Mitsue systems during the fourth quarter of 2013.
Gross profit was $119 million and $30 million for the
twelve and three months ended December 31, 2014, respectively, compared to $114 million and $32 million during the same periods
of 2013. Gross profit increased in 2014 due to the same factors that resulted in higher operating margin. Gross profit decreased
slightly during the fourth quarter of 2014 compared to the same quarter of the prior year due to increased depreciation and amortization
included in operations, as discussed above.
Full-year capital expenditures
within the Oil Sands & Heavy Oil business totalled $41 million in 2014, primarily relating to the Cornerstone pipeline project
and pipeline connections. On September 25, 2014, Pembina was informed that Statoil's Cornerstone oil sands project had been
deferred for an indeterminate period of time. The engineering support agreement between Pembina and Statoil for the related Cornerstone
oil sands pipeline expired, and no additional capital will be spent on the pipeline project. Pembina will retain the right to use
the engineering for other commercial discussions and recognized a net impairment of non-recoverable costs of $6 million related
to the Cornerstone pipeline project. Of the total expenditures on the Cornerstone project, $25
million has been recovered. The capital expenditures in 2013 totalled $38 million, which primarily related to the construction
of additional pump stations on the Nipisi and Mitsue pipelines.
Pembina
Pipeline Corporation
Gas Services
|
3 Months Ended
December 31
(unaudited) |
12 Months Ended
December 31 |
($ millions, except where noted) |
2014 |
2013 |
2014 |
2013 |
Average volume processed (MMcf/d) net to Pembina(1) |
584 |
397 |
515 |
319 |
Average volume processed (mboe/d)(2) net to Pembina |
97 |
66 |
86 |
53 |
Revenue |
46 |
33 |
165 |
121 |
Operating expenses |
17 |
12 |
58 |
43 |
Operating margin(3) |
29 |
21 |
107 |
78 |
Depreciation and amortization included in operations |
7 |
7 |
22 |
20 |
Gross profit |
22 |
14 |
85 |
58 |
Capital expenditures |
79 |
56 |
295 |
258 |
| (1) | Volumes at the Musreau Gas Plant exclude deep cut processing as those volumes are counted when they are processed through the
shallow cut portion of the plant. |
| (2) | Average volume processed converted to mboe/d from MMcf/d at a 6:1 ratio. |
| (3) | Refer to "Non-GAAP and Additional GAAP Measures." |
Business Overview
Pembina's operations include a growing natural gas gathering
and processing business, which is strategically-positioned in active and emerging NGL-rich plays in the WCSB and integrated with
Pembina's other businesses. Gas Services provides gas gathering, compression, and both shallow and deep cut processing services
for its customers, primarily on a fee-for-service basis under long-term contracts. The NGL extracted through this business' facilities
are transported on Pembina's Conventional Pipelines. Operating assets within Gas Services include:
| · | Pembina's Cutbank Complex – located near Grand Prairie, Alberta,
this facility includes four shallow cut sweet gas processing plants (the Cutbank Gas Plant, the Musreau Gas Plant, the Musreau
II Facility and the Kakwa Gas Plant) and one deep cut gas processing plant (the Musreau Deep Cut Facility). In total, the Cutbank
Complex has 525 MMcf/d of processing capacity (468 MMcf/d net to Pembina) and 205 MMcf/d of ethane-plus extraction capacity (net
to Pembina). The Cutbank Complex also includes approximately 350 km of gathering pipelines. |
| · | Pembina's Saturn I Facility – located near Hinton, Alberta,
this facility includes 200 MMcf/d of ethane-plus extraction capacity as well as approximately 25 km of gathering pipelines. |
| · | Pembina's Resthaven Facility – located near Resthaven, Alberta,
this facility includes 200 MMcf/d (134 MMcf/d net to Pembina) of extraction capacity. |
These facilities are connected to Pembina's Peace Pipeline
System. The Company continues to progress construction and development of numerous other facilities in its Gas Services business
to meet the growing needs of producers in west central Alberta and Saskatchewan, as discussed in more detail below.
Operational Performance
Within Pembina's Gas Services business, on a full-year
basis, volumes increased more than 61 percent to 515 MMcf/d compared to 319 MMcf/d in 2013. Higher volumes during 2014 were primarily
related to the addition of the Saturn I Facility, which was placed into service in late October 2013 and which operated above its
nameplate capacity of 200 MMcf/d during a large portion of 2014. Improved operational performance at the Cutbank Complex also contributed
to the growth in volumes. Overall, during 2014, Pembina continued to benefit from producer activity in the areas surrounding its
assets that is focused on liquids-rich natural gas.
Pembina
Pipeline Corporation
Average volume processed, net to Pembina, was 584 MMcf/d
during the fourth quarter of 2014, approximately 47 percent higher than the 397 MMcf/d processed during the fourth quarter of the
previous year. Increased volumes were related to a full quarter's contribution from the Saturn I Facility, as well as volumes from
the Resthaven Facility, which was placed into service on October 6, 2014 and the Musreau II Facility, which was placed into service
on December 17, 2014.
Financial Performance
Gas Services generated revenue of $165 million in 2014
compared to $121 million in 2013. During the fourth quarter of 2014, $46 million in revenue was generated, up from $33 million
in the same period of the prior year. These 36 and 39 percent increases, respectively, primarily reflect the new facilities that
were placed into service in this business, as discussed above.
Full-year operating expenses
totalled $58 million, up from $43 million during the prior year. For the fourth quarter of 2014, Gas Services incurred operating
expenses of $17 million compared to $12 million during the fourth quarter of 2013. The full-year and quarterly increases during
2014 were mainly due to additional operating costs associated with the new Saturn I Facility, as well as the Resthaven Facility
and Musreau II Facility being placed into service later in the year, and higher operating costs related to the increase in volumes
processed at the Cutbank Complex. Pembina also conducted turnarounds at its Cutbank and Musreau gas plants and expensed associated
costs during the second and third quarters of 2014, respectively. Expenditures associated with these turnarounds are recovered
under Pembina's contractual arrangements with its customers; however, processing revenue and service fees are not earned during
outages.
Gas Services realized operating margin of $107 million
in 2014 and $29 million in the fourth quarter of 2014 compared to $78 million and $21 million during the same periods of the previous
year. On a full-year basis, operating margin increased primarily as a result of strong operating performance and the addition of
new assets since the prior period. Increased volumes and revenue during the three months ended December 31, 2014 resulted in improved
operating margin over the fourth quarter.
Depreciation and amortization included in operations for
the full-year of 2014 totalled $22 million compared to $20 million in 2013, with the increase primarily attributable to the addition
of new assets as discussed above. For the fourth quarter of 2014, depreciation and amortization included in operations totalled
$7 million, unchanged from the same period of the prior year.
On a full-year basis, gross profit was $85 million in
2014 compared to $58 million during 2013. For the three months ended December 31, 2014, gross profit
was $22 million compared to $14 million in the same period of 2013. These increases reflect higher operating margin during the
2014 periods compared to the same periods of 2013, primarily resulting from new assets being placed into service.
For the year ended December 31, 2014, capital expenditures
within Gas Services totalled $295 million compared to $258 million during 2013. Capital spending in 2014 was largely to progress
the multi-year construction projects at Resthaven, Saturn II, and Musreau II, which are discussed below. In 2013, capital expenditures
were primarily related to the Saturn I Facility, Saturn II, Musreau II and Resthaven.
New Developments
The Company continued to attract significant support for
new gas gathering and processing infrastructure throughout 2014 and successfully progressed its roster of projects within this
business.
Pembina
Pipeline Corporation
On October 6, 2014, Pembina placed its 200 MMcf/d (134
MMcf/d net) Resthaven Facility into service and it is now delivering NGL into Pembina's Peace Pipeline.
On October 10, 2014, Pembina announced that it plans to
proceed with a $170 million (gross) 100 MMcf/d expansion of the Resthaven Facility and to build, own and operate a new gas gathering
pipeline that will deliver gas into the plant (collectively, the "Resthaven Expansion"). The Resthaven Expansion is underpinned
by a long-term fee-for-service agreement and Pembina expects the plant expansion to be in-service in mid-2016 and the gathering
pipeline to be in-service in mid-2015.
On November 27, 2014,
Pembina announced that it plans to construct a new 100 MMcf/d shallow cut facility ("Musreau III") and further
expand its gas processing capacity at Musreau for an estimated cost of $105 million. Musreau III,
which is underpinned by long-term agreements with several area producers, will be built adjacent to Pembina's existing Musreau
I and Musreau II facilities. The new gas plant will leverage the engineering, design and execution strategy from the Company's
Musreau I and Musreau II facilities and will use the same pipeline lateral to access Pembina's Peace Pipeline System. Pembina
expects Musreau III to have liquids extraction capacity of 3 mbpd, subject to gas compositions. The agreements for Musreau III
are take-or-pay in nature and provide flow through of operating expenses. Subject to regulatory and environmental approvals, Pembina
anticipates bringing Musreau III on-stream in mid-2016.
In total, once Musreau III is complete, the Cutbank Complex
will have 568 MMcf/d of shallow cut processing capacity, net to Pembina, 205 MMcf/d of deep cut processing capacity and will be
able to produce roughly 25 mbpd of liquids for transportation on Pembina's Conventional Pipelines.
Pembina has also completed commissioning of its newly
constructed 100 MMcf/d shallow cut gas plant, the Musreau II Facility, which came in slightly under budget and was placed into
service on December 17, 2014, ahead of its previously anticipated in-service date of the first quarter 2015.
The Company is progressing the construction of the newly-acquired
SEEP facility. The project is currently on budget and on schedule for a mid-2015 in-service date
with plant site construction approximately 25 percent complete. All regulatory and environmental approvals have been obtained and
all engineering, fabrication and construction services have been largely contracted.
Pembina's Saturn II Facility (a 200 MMcf/d 'twin' of the
Saturn I Facility) is on schedule and on budget and is expected to be commissioned in the third quarter and placed into service
by late-2015. To-date, the Company has completed 36 percent of site construction.
Once the facilities listed above come on-stream, Pembina
expects Gas Services' processing capacity to reach 1.5 bcf/d (net to Pembina), including ethane-plus extraction capacity of 870
MMcf/d (net to Pembina). The volumes from Pembina's existing assets and those under development (as discussed above) will be processed
largely on a contracted, fee-for-service basis and could result in 70 mbpd of NGL, subject to gas compositions, that would be transported
for toll revenue on Pembina's Conventional Pipelines. Volumes from these projects support Pembina's pipeline expansion plans as
discussed under "Conventional Pipelines."
Pembina
Pipeline Corporation
Midstream
|
3 Months Ended
December 31 (1)
(unaudited) |
12 Months Ended
December 31 (1) |
($ millions, except where noted) |
2014 |
2013 |
2014 |
2013 |
NGL sales volume (mbpd) |
130 |
122 |
119 |
109 |
Revenue |
1,052 |
1,115 |
5,259 |
4,346 |
Cost of goods sold, including product purchases |
991 |
932 |
4,672 |
3,766 |
Net revenue(2) |
61 |
183 |
587 |
580 |
Operating expenses |
12 |
19 |
69 |
91 |
Realized gain (loss) on commodity-related derivative financial instruments |
8 |
(3) |
10 |
(3) |
Operating margin(2) |
57 |
161 |
528 |
486 |
Depreciation and amortization included in operations |
34 |
26 |
135 |
114 |
Unrealized gain on commodity-related derivative financial instruments |
13 |
3 |
14 |
6 |
Gross profit |
36 |
138 |
407 |
378 |
Capital expenditures |
135 |
87 |
390 |
254 |
| (1) | Share of loss from equity accounted investees not included in these results. |
| (2) | Refer to "Non-GAAP and Additional GAAP Measures." |
Business Overview
Pembina offers customers a comprehensive suite of midstream
products and services through its Midstream business as follows:
| · | Crude oil midstream assets include
17 truck terminals (including three capable of emulsion treatment and water disposal) and terminalling at downstream hub locations
at the Pembina Nexus Terminal ("PNT"), which features storage, crude-oil-by-rail services and terminal connectivity.
PNT includes: 21 inbound pipeline connections; 13 outbound pipeline connections; in excess of 1.2 mmbpd of crude oil and condensate
supply connected to the terminal; and 310 mbbls of surface storage in and around the Edmonton and Fort Saskatchewan, Alberta areas. |
| · | NGL midstream includes two NGL operating systems – Redwater
West and Empress East. |
| o | The Redwater West NGL system ("Redwater West") includes
the 750 MMcf/d (322.5 MMcf/d net to Pembina) Younger extraction and fractionation facility in B.C.; a 73 mbpd NGL fractionator
and 7.9 mmbbls of finished product cavern storage at Redwater, Alberta; and third-party fractionation capacity in Fort Saskatchewan,
Alberta. Redwater West purchases NGL mix from various natural gas and NGL producers and fractionates it into finished products
for further distribution and sale. Also located at the Redwater site is Pembina's rail-based terminal which services Pembina's
proprietary and customer needs for importing and exporting specification NGL and crude oil. |
| o | The Empress East NGL system ("Empress East") includes 2.3
bcf/d capacity in the straddle plants at Empress, Alberta; 20 mbpd of fractionation capacity and 1.1 mmbbls of cavern storage
in Sarnia, Ontario; and 5.1 mmbbls of hydrocarbon storage at Corunna, Ontario. Empress East extracts NGL mix from natural gas at
the Empress straddle plants and purchases NGL mix from other producers/suppliers. Ethane and condensate are generally fractionated
out of the NGL mix at Empress and sold into Alberta markets. The remaining NGL mix is transported by pipeline to Sarnia, Ontario
for further fractionation, distribution and sale. |
Pembina
Pipeline Corporation
The financial performance of Pembina's Midstream
business can be affected by seasonal demands for products and other market factors. In NGL midstream, propane inventory
generally builds over the second and third quarters of the year and is sold in the fourth quarter and the first quarter of
the following year during the winter heating season. Condensate, butane and ethane are generally sold rateably throughout the
year. See "Risk Factors" in this MD&A for more information.
Operational & Financial Performance
In the Midstream business,
net revenue was $587 million in 2014 compared to $580 million in 2013. Higher net revenue
was primarily due to increased storage opportunities in the first half of 2014 along with higher throughput volumes and
wider margins, offset by a challenging fourth quarter, as noted below. Pembina generated net revenue of $61 million during the
fourth quarter of 2014, down from $183 million during the fourth quarter of 2013. The decrease was largely due to the significant
decline in commodity prices (particularly the weaker quarter-over-quarter propane prices), which resulted in Pembina recording
an inventory write-down of $38 million. Lower price differentials across all commodities, combined with lower crude oil midstream
storage revenue, also contributed to the decrease in net revenue from the prior period.
Operating expenses during the full-year and fourth quarter
of 2014 were $69 million and $12 million, respectively, compared to $91 million and $19 million in the comparable periods of 2013.
The decrease during the full-year and fourth quarter was largely due to the Company's sale of its non-core trucking-related subsidiary
in the third quarter of 2014.
Operating margin was $528
million during the full-year and $57 million during the fourth quarter of 2014 compared to $486 million and $161 million in
the respective periods of 2013. The increase in full-year operating margin was primarily due to
stronger NGL pricing early in the year and the factors that positively impacted annual net revenue, discussed above. Lower fourth
quarter net revenue in 2014, as previously mentioned, contributed to the decrease in operating margin over the comparable period
in 2013.
The Company's crude oil
midstream operating margin for the year ended December 31, 2014 totalled $188 million compared to $147 million during the prior
year. The higher full-year results were due to increased storage opportunities in the first half of 2014, higher volumes and wider
margins offset by lower price differentials and lower storage revenue later in 2014. Crude
oil midstream operating margin was $36 million in the fourth quarter of 2014 compared to $47 million in the same period of 2013.
This decrease was largely due to the factors which impacted net revenue, particularly low differentials and weaker commodity prices.
For the year ended December
31, 2014, operating margin for NGL midstream was $340 million compared to $339 million during 2013. Despite weak fourth quarter
results, NGL midstream contributed strong operating margin for 2014, primarily related to positive market prices for propane, particularly
in Empress East, earlier in the year. Operating margin for Pembina's NGL midstream activities was $21 million for the fourth quarter
of 2014 compared to $114 million for the fourth quarter of 2013. The rapid decline in market pricing for NGL in general and propane
specifically throughout the fourth quarter contributed to this reduction. Pembina's average realized sales price for propane
declined approximately 30 percent in the fourth quarter of 2014 compared to the same period of 2013. Further, while
NGL sales volumes were seven percent higher during the fourth quarter of 2014 than during the same period of 2013, at 130 mbpd,
the low commodity price environment inhibited Pembina's ability to generate revenue on these volumes. Volumes increased primarily
due to higher ethane production at Empress East resulting from Pembina's increased ownership share in the Empress Facilities as
well as opportunities related to gas extraction.
Pembina
Pipeline Corporation
Full-year depreciation and amortization included in operations
for Pembina's Midstream business totalled $135 million, up from $114 million in 2013. This increase reflects the growth in this
business' asset base since the prior period. Additionally, in the second quarter of 2014, the Company recognized a $13 million
charge for accelerated depreciation associated with the disposal of non-core trucking-related assets. Depreciation and amortization
included in operations during the fourth quarter of 2014 totalled $34 million compared to $26 million during the fourth quarter
of 2013, with the increase attributable to the same reasons which impacted the full-year.
For the twelve and three months ended December 31, 2014,
gross profit in this business was $407 million and $36 million, respectively, compared to $378 million and $138 million during
the same periods in 2013 due to the same factors which impacted net revenue, operating expenses, and depreciation and amortization
included in operations, as noted above.
For the year ended December 31, 2014,
capital expenditures within the Midstream business totalled $390 million compared to $254 million during 2013. Capital spending
in this business in 2014 was primarily directed towards the development of Pembina's second fractionator ("RFS II") as
well as NGL storage caverns and associated infrastructure. Capital was also deployed to progress the build-out of Pembina's full-service
terminal network, including completion of the Cynthia Full-Service Terminal, which commenced service in June 2014 and above-ground
storage in the Edmonton area. Capital expenditures in 2013 primarily related to cavern development at the Company's Redwater facility.
New Developments
Pembina continues to progress facility construction of
its second 73 mbpd ethane-plus fractionator at the Company's Redwater site ("RFS II"). Over 80 percent of equipment has
been set on site and module fabrication is substantially complete. On site construction is currently 65 percent complete. The project
is on schedule and anticipated to be on-stream late in the fourth quarter of 2015.
With the addition of RFS III, Pembina's third fractionator
at its Redwater site with propane-plus capacity of 55 mbpd, which was announced in May 12, 2014, fractionation capacity will total
210 mbpd, making the Company's Redwater complex the largest fractionation facility in Canada. Detailed engineering work is underway
and over 30 percent of long-lead equipment has been ordered, with all critical orders in place. Pembina has now received regulatory
approval and has submitted its application for environmental approval, which it anticipates receiving later this year. Subject
to obtaining this approval, Pembina expects RFS III to be in-service in the third quarter of 2017. Overall, the project is tracking
on schedule and on budget.
As announced on October 9, 2014, Pembina plans to develop
the Canadian Diluent Hub ("CDH"), a large-scale condensate and diluent terminal at its Heartland Terminal site near Fort
Saskatchewan, Alberta. The proposed facilities are designed to accommodate contracted diluent supply volumes from the Company's
previously announced field gas plant, pipeline and NGL fractionator expansions. The Company expects CDH to become a new market
hub for condensate and other diluents by offering its customers a variety of value-added services.
Site preparation began in late-2013 and is on-going. Subject
to further regulatory and environmental approvals, Pembina anticipates phasing-in incremental pipeline connections to regional
condensate delivery systems in 2016 with a view to achieving full connectivity and service offerings at CDH in mid-2017.
On June 16, 2014, Pembina's Midstream business placed a new full-service
truck terminal in the Cynthia area of Alberta into service which was operating at full capacity by the end of the year. The Company
also continued with the development of storage capacity at its Edmonton North Terminal. During the fourth quarter, Pembina progressed
construction at the site with a view to bringing the additional 540 mbbls of above-ground storage tanks into service in mid-2016.
Pembina
Pipeline Corporation
At its storage and terminalling facilities in Corunna,
Ontario, Pembina progressed development of a new brine pond, rail upgrades, and the installation of a new propane truck rack to
meet increased demand for services. Pembina also continued throughout the year on its underground hydrocarbon cavern development
program at its Redwater facility.
In September, the Company communicated its plans to
proceed with developing a 37 mbpd west coast propane export terminal under an agreement with the Port of Portland, Oregon. This
agreement sets forth the terminal site, which includes an existing marine berth located within the city of Portland, for the development
of the project. Since the announcement, Pembina's dedicated project team is continuing to make progress with community, regulatory
and special interest group engagement, and is also advancing detailed engineering design work in advance of a number of permit
applications to be submitted throughout 2015. The project is anticipated to be brought into service in early-2018 (subject to obtaining
required permits and approvals). The Company expects that the proposed terminal will provide growing Canadian propane supply (that
is derived from natural gas produced in western Canada) with access to large, international markets, while complementing Pembina's
expanding integrated service offering for products that are derived from natural gas.
Acquisition of Vantage Pipeline
On October 24, 2014, Pembina acquired the Vantage Pipeline
and Mistral Midstream Inc.'s ("Mistral") interest in SEEP for total consideration of $733 million (U.S.$653 million).
To enact the purchase, Pembina acquired all of the issued and outstanding equity interests of Vantage Pipeline Canada ULC, Vantage
Pipeline US LP and Mistral. Consideration for the transaction consisted of cash of $217 million (U.S.$193 million), the issuance
of 5,610,317 common shares of the Company valued at $266 million (U.S.$237 million), and repayment of Vantage's bank indebtedness
of $250 million (U.S.$223 million) at closing (the "Vantage Acquisition"). The fair value of the common shares issued
was based on the TSX listed share price on the date of the Vantage Acquisition.
The Vantage Pipeline is a recently constructed high
vapour pressure pipeline that is approximately 700 km long with a capacity of approximately 40 mbpd. The pipeline originates in
Tioga, North Dakota and terminates near Empress, Alberta and it provides long-term, fee-for-service cash flow and access to the
North Dakota Bakken play for future NGL opportunities. The Vantage Pipeline forms part of Pembina's Conventional Pipelines business.
As part of the Vantage Acquisition, Pembina also acquired
pipeline infrastructure from Mistral and Mistral's interest in SEEP, an under construction, 60 MMcf/d deep cut gas processing facility
that is centrally located to service the southeast Saskatchewan Bakken region. SEEP, which is underpinned by both a long-term ethane
sales agreement and a long-term, fee-for-service processing agreement, is expected to produce approximately 4.5 mbpd of ethane
and connects into the Vantage Pipeline through a pipeline lateral. Pembina expects SEEP and the associated pipeline lateral to
be in-service in mid-2015. SEEP and the associated pipeline lateral form part of Pembina's Gas Services business.
Subsequent to year end, the Company announced on February
10, 2015 that it has entered into agreements to proceed with Vantage Expansion for an estimated capital cost of $85 million. Subject
to regulatory and environmental approvals, the Vantage Expansion is expected to be in-service in early-2016. See "Operating
Results – Conventional Pipelines – New Developments" for more information.
Pembina
Pipeline Corporation
Other Non-Operating Expenses
Pension Liability
Pembina maintains a defined contribution plan and non-contributory
defined benefit pension plans covering employees and retirees. The defined benefit plans include a funded registered plan for all
qualified employees and an unfunded supplemental retirement plan for those employees affected by the Canada Revenue Agency maximum
pension limits. At the end of 2014, the pension plans carried an obligation of $20 million compared to an obligation of $2 million
at the end of 2013. At December 31, 2014, plan obligations amounted to $157 million (2013: $126 million) compared to plan assets
of $138 million (2013: $124 million). In 2014, the pension plans' expense was $8 million (2013: $10 million). Contributions to
the pension plans totaled $10 million in 2014 and $13 million in 2013.
In 2015, contributions to the pension plans are expected
to be $9 million and the pension plans' net expenses are anticipated to be $12 million. Management anticipates an annual increase
in compensation of four percent, which is consistent with current industry standards.
Financing Activity
On January 16, 2014, Pembina closed its offering of 10
million cumulative redeemable rate reset class A preferred shares, Series 5 ("Series 5 Preferred Shares") at a price
of $25.00 per share for aggregate proceeds of $250 million. Dividends on the Series 5 Preferred Shares are $0.3125 quarterly, or
$1.25 per share on an annualized basis, payable on the 1st day of March, June, September and December, as and when declared by
the Board of Directors of Pembina, for the initial fixed rate period to but excluding June 1, 2019.
The Series 5 Preferred Shares began trading on the Toronto Stock Exchange on January 16, 2014 under the symbol PPL.PR.E.
On April 4, 2014, the Company issued $600 million senior
unsecured medium-term notes and subsequently repaid the $75 million senior unsecured term facility on April 7, 2014 and the $175
million senior unsecured notes (Series A) on June 16, 2014.
On September 11, 2014, Pembina closed its offering of
10 million cumulative redeemable rate reset class A preferred shares, series 7 ("Series 7 Preferred Shares") at a price
of $25.00 per share for aggregate gross proceeds of $250 million. Dividends on the Series 7 Preferred Shares are $0.2813 quarterly,
or $1.125 per share on an annualized basis, payable on the 1st day of March, June, September and December, as and when declared
by the Board of Directors of Pembina, for the initial fixed rate period to but excluding December 1, 2019. The Series 7 Preferred
Shares began trading on the Toronto Stock Exchange on September 11, 2014 under the symbol PPL.PR.G.
Subsequent to the year-end, on February 2, 2015, Pembina
closed an offering of $600 million of senior unsecured medium-term notes. The offering was conducted in two tranches consisting
of $450 million in senior unsecured medium-term notes, series 5 having a fixed coupon of 3.54 percent per annum, paid semi-annually,
and maturing on February 3, 2025, and $150 million through the re-opening of its 4.75 percent medium-term notes, series 3, due
April 30, 2043. Net proceeds were used to reduce short-term indebtedness of the Company under its credit facilities, and will also
be used to fund Pembina's capital program and for other general corporate purposes.
Pembina
Pipeline Corporation
Liquidity & Capital Resources
($ millions) |
December 31, 2014 |
December 31, 2013 |
Working capital(1) |
(17) |
(170) |
Variable rate debt(2) |
|
|
Bank debt |
510 |
50 |
Total variable rate debt outstanding (average of 2.74%) |
510 |
50 |
Fixed rate debt(2) |
|
|
Senior unsecured notes |
467 |
642 |
Senior unsecured term debt |
|
75 |
Senior unsecured medium-term notes |
1,500 |
900 |
Subsidiary debt |
|
8 |
Total fixed rate debt outstanding (average of 4.8%) |
1,967 |
1,625 |
Convertible debentures(2) |
410 |
633 |
Finance lease liability |
10 |
9 |
Total debt and debentures outstanding |
2,897 |
2,317 |
Cash and unutilized debt facilities |
1,073 |
1,531 |
| (1) | As at December 31, 2014, working capital includes $4 million (December 31, 2013: $262 million) associated with the current
portion of loans and borrowings. |
Pembina anticipates cash flow from operating activities
will be more than sufficient to meet its short-term operating obligations and fund its targeted dividend level. Recent global economic
conditions have had a downward effect on commodity pricing; however, Pembina's business model is largely comprised of cash flow
derived from fee-for-service arrangements, which helped mitigate the impact of the market downturn during the latter part of 2014.
Pembina believes that its reliable cash flow, limited commodity exposure (with the exception of portions of its Midstream business)
and strong credit profile will enable it to preserve its financial strength into the foreseeable future, particularly as the Company
brings its $5.8 billion of long-term, fee-for-service-based projects into service throughout the 2015 to late 2017 timeframe. In
the short-term, Pembina expects to source funds required for capital projects from cash and cash equivalents, unutilized debt facilities
and the DRIP. Further, based on its successful access to financing in the debt and equity markets recently and over the past several
years, Pembina believes it should continue to have access to funds at attractive rates, if and when required, despite the recent
weakened global economic environment. Refer to "Risk Factors – Additional Financing and Capital Resources" for
more information. Management remains satisfied that the leverage employed in Pembina's capital structure is sufficient and appropriate
given the characteristics and operations of the underlying asset base.
Management may make adjustments to Pembina's capital structure
as a result of changes in economic conditions or the risk characteristics of the underlying assets. To maintain or modify Pembina's
capital structure in the future, Pembina may renegotiate new debt terms, repay existing debt, seek new borrowing and/or issue additional
equity.
Pembina's credit facilities at December 31, 2014 consisted
of an unsecured $1.5 billion (2013: $1.5 billion) revolving credit facility, which maturity was extended during the year to March
2019, and an operating facility of $30 million (2013: $30 million) due July 2015, which is expected to be renewed on an annual
basis. Borrowings on the revolving credit facility and the operating facility bear interest at prime lending rates plus nil to
1.25 percent (2013: nil to 1.25 percent) or Bankers' Acceptances rates plus 1.00 percent to 2.25 percent (2013: 1.0 to 2.25 percent).
Margins on the credit facilities are based on the credit rating of Pembina's senior unsecured debt. There are no repayments due
over the term of these facilities. As at December 31, 2014, Pembina had $1,073 million (2013: $1,531 million) of cash and unutilized
debt facilities. Pembina also had an additional $38 million (2013: $8 million) in letters of credit issued in a separate demand
letter of credit facility. At December 31, 2014, Pembina had loans and borrowings (excluding amortization, letters of credit and
finance lease liabilities) of $2,477 million (2013: $1,675 million). Pembina's senior debt to total capital at December 31, 2014
was 27 percent (2013: 22 percent). Pembina is required to meet certain specific and customary affirmative and negative financial
covenants under its senior unsecured notes, medium-term notes and revolving credit and operating facilities including a requirement
to maintain certain financial ratios. Pembina is also subject to customary restrictions on its operations and activities under
its notes and facilities, including restrictions on the granting of security, incurring indebtedness and the sale of its assets.
Pembina was in compliance with all covenants under its notes and facilities as at the quarter ended December 31, 2014 and as at
December 31, 2013.
Pembina
Pipeline Corporation
During the fourth quarter of 2014, $21 million of Pembina's
convertible debentures (face value) were converted into one million common shares. The conversions were primarily of Series C convertible
debentures maturing November 30, 2020 with a conversion price of $28.55 per common share.
Credit Ratings
The following information with respect to Pembina's credit
ratings is provided as it relates to Pembina's financing costs and liquidity. Specifically, credit ratings affect Pembina's ability
to obtain short-term and long-term financing and the cost of such financing. A reduction in the current ratings on Pembina's debt
by its rating agencies, particularly a downgrade below investment grade ratings, could adversely affect Pembina's cost of financing
and its access to sources of liquidity and capital. In addition, changes in credit ratings may affect Pembina's ability, and the
associated costs, to enter into normal course derivative or hedging transactions. Credit ratings are intended to provide investors
with an independent measure of credit quality of any issues of securities. The credit ratings assigned by the rating agencies are
not recommendations to purchase, hold or sell the securities nor do the ratings comment on market price or suitability for a particular
investor. Any rating may not remain in effect for a given period of time or may be revised or withdrawn entirely by a rating agency
in the future if, in its judgment, circumstances so warrant.
DBRS rates Pembina's senior unsecured notes and senior
unsecured medium-term notes 'BBB' and Series 1, Series 3, Series 5 and Series 7 Preferred Shares Pfd-3. S&P's long-term corporate
credit rating on Pembina is 'BBB' and its rating of the Class A preferred shares, Series 1, Series 3, Series 5 and Series 7 is
P-3.
Capital Expenditures
|
3 Months Ended
December 31
(Unaudited) |
12 Months Ended
December 31 |
($ millions) |
2014 |
2013 |
2014 |
2013 |
Development capital |
|
|
|
|
Conventional Pipelines |
232 |
126 |
628 |
325 |
Oil Sands & Heavy Oil |
6 |
5 |
41 |
38 |
Gas Services |
79 |
56 |
295 |
258 |
Midstream |
135 |
87 |
390 |
254 |
Corporate/other projects |
31 |
1 |
58 |
5 |
Total development capital |
483 |
275 |
1,412 |
880 |
During the full-year and fourth quarter of 2014, capital
expenditures were $1,412 million and $483 million, respectively, compared to $880 million and $275 million in the same periods
of 2013.
The majority of the capital expenditures in the 2014 periods were
in Pembina's Conventional Pipelines, Midstream, and Gas Services businesses. Conventional Pipelines' capital was for the most part
incurred to complete its previously announced Simonette Expansion and progress its Phase II and Phase III Expansions. Midstream's
capital expenditures were primarily directed towards RFS II, cavern development, the Cynthia Full-Service Terminal, above ground
storage and related infrastructure at the Redwater facility. Gas Services' capital was deployed to progress the Resthaven, Saturn
II and Musreau II facilities.
Pembina
Pipeline Corporation
With respect to Pembina's planned capital expenditures
for 2015, refer to "Conventional Pipelines – New Developments", "Oil Sands & Heavy Oil – New Developments",
"Gas Services – New Developments" and "Midstream – New Developments." Also refer to "Risk
Factors – Completion and Timing of Expansion Projects" and "Risk Factors – Possible Failure to Realize Anticipated
Benefits of Corporate Strategy" and Pembina's press release dated December 1, 2014.
Contractual Obligations at December
31, 2014
($ millions) |
Payments Due By Period |
Contractual Obligations |
Total |
Less than
1 year |
1 – 3 years |
3 – 5 years |
After
5 years |
Operating and finance leases(1) |
745 |
55 |
145 |
153 |
392 |
Loans and borrowings(2)(4) |
3,951 |
94 |
189 |
964 |
2,704 |
Convertible debentures(2) |
534 |
25 |
73 |
187 |
249 |
Construction commitments(3)(5) |
1,983 |
1,724 |
192 |
67 |
|
Provisions |
410 |
|
34 |
3 |
373 |
Total contractual obligations(2) |
7,623 |
1,898 |
633 |
1,374 |
3,718 |
| (1) | Includes office space, vehicles, and over 3,500 rail car leases supporting future propane transportation in the Midstream business
(approximately 1,200 rail car leases at December 31, 2014). |
| (2) | Excluding deferred financing costs. |
| (3) | Excluding significant projects that are awaiting regulatory approval. |
| (4) | Including interest payments on senior unsecured notes. |
| (5) | Including investment commitments to equity accounted investees of $5 million. |
Pembina is, subject to certain conditions, contractually
committed to the construction and operation of the Saturn II Facility, the Musreau II and III facilities, the Resthaven Expansion,
SEEP, RFS II, RFS III, the Phase II, III and NEBC pipeline expansions, as well as certain pipeline connections and laterals and
select caverns at the Company's Redwater site. See "Forward-Looking Statements & Information" and "Liquidity
& Capital Resources."
The Company updated its estimates for decommissioning
obligations as outlined in Note 15 to the Consolidated Financial Statements. The Company has estimated the net present value of
its total decommissioning obligations based on a total future liability of $410 million (2013: $309 million). The estimate has
applied a medium-term inflation rate and current discount rate and includes a revision in the decommissioning assumptions and associated
costs and timing of payments. The obligations are expected to be paid over the next 75 years (2013: 75 years) with majority being
paid between 30 and 40 years. The Company applied a 2 percent inflation rate per annum (2013: 2 percent) and a risk free rate of
2.3 percent (2013: 3.2 percent) to calculate the present value of the decommissioning provision.
Pembina
Pipeline Corporation
Trading Activity and Total Enterprise
Value(1)
|
|
As
at and for the 12
months
ended |
($
millions, except where noted) |
February
24, 2015(2) |
December
31, 2014 |
December
31, 2013 |
Trading
volume and value |
|
|
|
Total
volume (millions of shares) |
40
|
240 |
142 |
Average
daily volume (thousands of shares) |
1,091
|
955 |
566 |
Value
traded |
1,592
|
10,379 |
4,580 |
Shares
outstanding (millions of shares) |
340
|
338 |
315 |
Closing
share price (dollars) |
39.82
|
42.34 |
37.42 |
Market
value |
|
|
|
Common
shares |
13,526 |
14,308 |
11,793 |
Series
1 Preferred Shares (PPL.PR.A) |
216(3) |
244(4) |
242(5) |
Series
3 Preferred Shares (PPL.PR.C) |
135(6) |
150(7) |
151(8) |
Series
5 Preferred Shares (PPL.PR.E) |
251(9) |
257(10) |
|
Series
7 Preferred Shares (PPL.PR.G) |
242(11) |
250(12) |
|
5.75%
convertible debentures (PPL.DB.C) |
324(13) |
347(14) |
396(15) |
5.75%
convertible debentures (PPL.DB.E) |
38(16) |
37(17) |
244(18) |
5.75%
convertible debentures (PPL.DB.F) |
206(19) |
208(20) |
219(21) |
Market
capitalization |
14,938
|
15,801 |
13,045 |
Senior
debt |
2,607
|
2,477 |
1,617 |
Cash
and cash equivalents |
(26)
|
(53) |
(51) |
Total
enterprise value(22) |
17,519
|
18,225 |
14,611 |
| (1) | Trading
information in this table reflects the activity of Pembina securities on the Toronto
Stock Exchange only. |
| (2) | Based
on 37 trading days from January 2, 2015 to February 24, 2015, inclusive. |
| (3) | 10
million preferred shares outstanding at a market price of $21.65 at February 24, 2015. |
| (4) | 10
million preferred shares outstanding at a market price of $24.40 at December 31, 2014. |
| (5) | 10
million preferred shares outstanding at a market price of $24.26 at December 31, 2013. |
| (6) | 6
million preferred shares outstanding at a market price of $22.50 at February 24, 2015. |
| (7) | 6
million preferred shares outstanding at a market price of $24.97 at December 31, 2014. |
| (8) | 6
million preferred shares outstanding at a market price of $25.15 at December 31, 2013. |
| (9) | 10
million preferred shares outstanding at a market price of $25.11 at February 24, 2015. |
| (10) | 10
million preferred shares outstanding at a market price of $25.70 at December 31, 2014. |
| (11) | 10
million preferred shares outstanding at a market price of $24.15 at February 24, 2015. |
| (12) | 10
million preferred shares outstanding at a market price of $25.02 at December 31, 2014. |
| (13) | $231
million principal amount outstanding at a market price of $140.00 at February 24, 2015
and with a conversion price of $28.55. |
| (14) | $236
million principal amount outstanding at a market price of $147.00 at December 31, 2014
and with a conversion price of $28.55. |
| (15) | $299
million principal amount outstanding at a market price of $132.63 at December 31, 2013
and with a conversion price of $28.55. |
| (16) | $23
million principal amount outstanding at a market price of $160.90 at February 24, 2015
and with a conversion price of $24.94. |
| (17) | $23
million principal amount outstanding at a market price of $160.00 at December 31, 2014
and with a conversion price of $24.94. |
| (18) | $163
million principal outstanding at a market price of $149.95 at December 31, 2013 and with
a conversion price of $24.94. |
| (19) | $150
million principal amount outstanding at a market price of $137.84 at February 24, 2015
and with a conversion price of $29.53. |
| (20) | $150
million principal amount outstanding at a market price of $138.50 at December 31, 2014
and with a conversion price of $29.53. |
| (21) | $172
million principal outstanding at a market price of $127.50 at December 31, 2013 with
a conversion price of $29.53. |
| (22) | Refer
to "Non-GAAP and Additional GAAP Measures." |
As indicated in the table above, Pembina's total enterprise
value was $18.2 billion at December 31, 2014. The increase from 2013 was primarily due to greater common shares outstanding related
to the DRIP and debenture conversions, shares issued in relation to the Vantage Acquisition, an increase in the price of Pembina's
common shares and the addition of the preferred shares and additional debt.
Common Share Dividends
Common share dividends are payable if, as, and when declared
by Pembina's Board of Directors. The amount and frequency of dividends declared and payable is at the discretion of the Board of
Directors, which considers earnings, capital requirements, the financial condition of Pembina and other relevant factors.
Preferred Share Dividends
The holders of Pembina's preferred shares are entitled
to receive fixed cumulative dividends payable quarterly on the 1st day of March, June, September and December, if, as and when
declared by the Board of Directors of Pembina, for the initial fixed rate period for each series of preferred share.
Pembina
Pipeline Corporation
DRIP
Eligible Pembina shareholders have the opportunity to
receive, by reinvesting the cash dividends declared payable by Pembina on their common shares, either (i) additional common shares
at a discounted subscription price equal to 95 percent of the Average Market Price (as defined in the DRIP), pursuant to the "Dividend
Reinvestment Component" of the DRIP, or (ii) a premium cash payment (the "Premium Dividend™") equal to 102
percent of the amount of reinvested dividends, pursuant to the "Premium Dividend™ Component" of the DRIP. Additional
information about the terms and conditions of the DRIP can be found at www.pembina.com.
Participation in the DRIP for the year end and fourth
quarter 2014 was 57 percent of common shares outstanding. Proceeds for 2014 and the fourth quarter of 2014 totalled $321 million
and $83 million respectively.
Critical Accounting Estimates
The preparation of the Consolidated Financial Statements
in conformity with IFRS requires management to make judgments, estimates and assumptions that are based on the circumstances and
estimates at the date of the financial statements and affect the application of accounting policies and the reported amounts of
assets, liabilities, income and expenses. Actual results may differ from these estimates.
Judgments, estimates and underlying assumptions are
reviewed on an ongoing basis. Revisions to accounting estimates are recognized in the period in which the estimates are revised
and in any future periods affected.
The following judgment and estimation uncertainties
are those management considers material to the Company's financial statements:
Judgments
Business combinations are accounted for using the acquisition
method of accounting. The determination of fair value often requires management to make judgments about future possible events.
The assumptions with respect to determining the fair value of property, plant and equipment and intangible assets acquired generally
require the most judgment.
| (ii) | Depreciation and amortization |
Depreciation and amortization of property, plant and
equipment and intangible assets are based on management's judgment of the most appropriate method to reflect the pattern of an
asset's future economic benefit expected to be consumed by the Company. Among other factors, these judgments are based on industry
standards and historical experience.
The determination of the Company's and its subsidiaries'
functional currency requires assessing several factors, including the currency that predominantly influences sales price, operational
and other costs, and to a lesser extent financing of the operations. Management has determined the functional currency of certain
Conventional Pipelines operations to be the U.S. dollar. The functional currency of all other entities was determined to be the
Canadian dollar.
Assessment of impairment is based on management’s judgment
of whether there are sufficient internal and external factors that would indicate that an asset, or cash generating unit ("CGU")
is impaired. The determination of a CGU is also based on management's judgment and is an assessment of the smallest group of assets
that generate cash inflows independently of other assets. The asset composition of a CGU can directly impact the recoverability
of the assets included therein. In assessing the recoverability, each CGU's carrying value is compared to its recoverable amount,
defined as the greater of fair value less costs to sell and value in use.
Pembina
Pipeline Corporation
Estimates
Estimates of future cash flows, forecast prices, interest
rates and discount rates are made in determining the fair value of assets acquired and liabilities assumed. Changes in any of the
assumptions or estimates used in determining the fair value of acquired assets and liabilities could impact the amounts assigned
to assets, liabilities, intangible assets and goodwill in the purchase price equation. Future earnings can be affected as a result
of changes in future depreciation and amortization, asset or goodwill impairment.
| (ii) | Provisions and contingencies |
Provisions recognized are based on management's judgment
about assessing contingent liabilities and timing, scope and amount of assets and liabilities. Management uses judgment in determining
the likelihood of realization of contingent assets and liabilities to determine the outcome of contingencies.
Based on the long-term nature of the decommissioning
provision, the most significant uncertainties in estimating the provision are the discount rates used, the costs that will be incurred
and the timing of when these costs will occur. In addition, in determining the provision it is assumed that the Company will utilize
technology and materials that are currently available.
The calculation of the deferred tax asset or liability
is based on assumptions about the timing of many taxable events and the enacted or substantively enacted rates anticipated to be
applicable to income in the years in which temporary differences are expected to be realized or reversed.
| (iv) | Depreciation and amortization |
Estimated useful lives of property, plant and equipment
and intangible assets are based on management's assumptions and estimates of the physical useful lives of the assets, the economic
lives, which may be associated with the reserve lives and commodity type of the production area, in addition to the estimated residual
value.
Impairment tests include management's best estimates of
future cash flows and discount rates.
Changes in Accounting Policies
The following new standards, interpretations, amendments
and improvements to existing standards issued by the International Accounting Standards Board ("IASB") or International
Financial Reporting Standards Interpretations Committee ("IFRIC") were adopted as of January 1, 2014 without any material
impact to Pembina's Financial Statements: IAS 32 Financial Instruments and IFRIC 21 Levies.
New Standards and Interpretations Not
Yet Adopted
Certain new standards, interpretations, amendments and improvements
to existing standards were issued by the IASB or IFRIC and are effective for accounting periods beginning on or after January 1,
2015. These standards have not been applied in preparing these Consolidated Financial Statements. Those which may be relevant to
Pembina are described below:
Pembina
Pipeline Corporation
IFRS 9 Financial Instruments (2014) is effective January
1, 2018 and is available for early adoption. The Company is currently evaluating the impact that the standard will have on its
results of operations and financial position and is assessing when adoption will occur.
IFRS 15 Revenue from Contracts with Customers is effective
for annual periods beginning on or after January 1, 2017. The Company intends to adopt IFRS 15 for the annual period beginning
on January 1, 2017. The Company is currently evaluating the impact that the standard will have on its results of operations and
financial position.
Controls and Procedures
Disclosure Controls and Procedures
Pembina maintains disclosure controls and procedures
designed to provide reasonable assurance that information required to be disclosed in Pembina's filings is reviewed, recognized
and disclosed accurately and in the appropriate time period.
An evaluation, as of December 31, 2014, of the effectiveness
of the design and operation of Pembina's disclosure controls and procedures, as defined in Rule 13a – 15(e) and 15d –
15(e) under the United States Securities Exchange Act of 1934, as amended (the "Exchange Act") and National Instrument
52-109 Certification of Disclosure in Issuer's Annual and Interim Filings ("NI 52-109"), was carried out by management,
including the Chief Executive Offer ("CEO") and the Chief Financial Officer ("CFO"). Based on that evaluation,
the CEO and CFO have concluded that the design and operation of Pembina's disclosure controls and procedures were effective as
at December 31, 2014 to ensure that material information relating to the Company is made known to the CEO and CFO by others, particularly
during the period during which the annual filings are being prepared.
It should be noted that while the CEO and CFO believe
that Pembina's disclosure controls and procedures provide a reasonable level of assurance that they are effective, they do not
expect that Pembina's disclosure controls and procedures will prevent all errors and fraud. A control system, no matter how well
conceived or operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met.
Internal Control over Financial Reporting
Pembina maintains internal control over financial reporting
which is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial
statements for external purposes in accordance with IFRS.
Management is responsible for establishing and maintaining
adequate internal control over financial reporting, as defined in Rules 13a – 15(f) and 15d – 15(f) under the Exchange
Act and under NI 52-109.
Management, including the CEO and the CFO, has conducted
an evaluation of Pembina's internal control over financial reporting based on criteria established in Internal Control –
Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).
Based on management's assessment as at December 31,
2014, the CEO and CFO have concluded that Pembina's internal control over financial reporting is effective.
Further, there has been no change in the Company's internal
control over financial reporting that occurred during the year covered by this Annual Report that has materially affected, or are
reasonably likely to materially affect, Pembina's internal control over financial reporting.
Pembina
Pipeline Corporation
The effectiveness of internal control over financial
reporting as of December 31, 2014 was audited by KPMG LLP, an independent registered public accounting firm, as stated in their
Report of Independent Registered Public Accounting Firm, which is included in this 2014 Annual Report to Shareholders.
Due to its inherent limitations, internal control over
financial reporting is not intended to provide absolute assurance that a misstatement of Pembina's financial statements would be
prevented or detected. Further, the evaluation of the effectiveness of internal control over financial reporting was made as of
a specific date, and continued effectiveness in future periods is subject to the risks that controls may become inadequate.
Risk Factors
Pembina's value proposition is based on maintaining
a low risk profile. In addition to contractually eliminating the majority of its business risk, Pembina has a formal Risk
Management Program including policies, procedures and systems designed to mitigate any residual risks. The risks that may
affect the business and operation of Pembina and its operating subsidiaries are described at a high level within this
MD&A and more fully within Pembina's Annual Information Form ("AIF"), an electronic copy of which is available
at www.pembina.com or on Pembina's SEDAR profile at www.sedar.com. Further, additional discussion about counterparty risk,
market risk, liquidity risk and additional information on financial risk management can be found in Note 24 to the
Consolidated Financial Statements.
Shareholders and prospective investors should carefully
consider these risk factors before investing in Pembina's securities, as each of these risks may negatively affect the trading
price of Pembina's securities, the amount of dividends paid to shareholders and the ability of Pembina to fund its debt obligations,
including debt obligations under its outstanding convertible debentures and any other debt securities that Pembina may issue from
time to time.
Operational Risks
Operational risks include: pipeline leaks; the breakdown
or failure of equipment, pipelines and facilities, information systems or processes; the compromise of information and control
systems; the performance of equipment at levels below those originally intended (whether due to misuse, unexpected degradation
or design, construction or manufacturing defects); spills at truck terminals and hubs; spills associated with the loading and unloading
of harmful substances onto rail cars and trucks; failure to maintain adequate supplies of spare parts; operator error; labour disputes;
disputes with interconnected facilities and carriers; operational disruptions or apportionment on third-party systems or refineries
which may prevent the full utilization of Pembina's facilities and pipelines; and catastrophic events such as natural disasters,
fires, floods, explosions, train derailments, earthquakes, acts of terrorists and saboteurs, and other similar events, many of
which are beyond the control of Pembina. Pembina may also be exposed from time to time, to additional operational risks not stated
in the immediately preceding sentences. The occurrence or continuance of any of these events could increase the cost of operating
Pembina's assets or reduce revenue, thereby impacting earnings. Additionally, Pembina's facilities and pipelines are reliant on
electrical power for their operations. A failure or disruption within the local or regional electrical power supply or distribution
or transmission systems could significantly affect ongoing operations. In addition, a significant increase in the cost of power
or fuel could have a materially negative effect on the level of profit realized in cases where the relevant contracts do not provide
for recovery of such costs.
Pembina
Pipeline Corporation
Additional Financing and Capital Resources
The timing and amount of Pembina's capital expenditures,
and the ability of the Company to repay or refinance existing debt as it becomes due, directly affects the amount of cash dividends
that Pembina pays. Future acquisitions, expansions of Pembina's pipeline systems and midstream operations, and
other capital expenditures and the repayment or refinancing of existing debt as it becomes due will be financed from sources such
as cash generated from operations, the issuance of additional shares or other securities (including debt securities) of Pembina,
and borrowings. Dividends may be reduced, or even eliminated, at times when significant capital or other expenditures are made.
There can be no assurance that sufficient capital will be available on terms acceptable to Pembina, or at all, to make additional
investments, fund future expansions or make other required capital expenditures. As a result of the recent weakened global economic
situation, Pembina may have restricted access to capital and increased borrowing costs. Although Pembina's business and asset base
have not changed materially, the ability of Pembina to raise capital is dependent upon, among other factors, the overall state
of capital markets and investor demand for investments in the energy industry and Pembina's securities in particular. To the extent
that external sources of capital, including the issuance of additional shares or other securities or the availability of additional
credit facilities, become limited or unavailable on favourable terms or at all due to credit market conditions or otherwise, the
ability of Pembina to make the necessary capital investments to maintain or expand its operations, to repay outstanding debt and
to invest in assets, as the case may be, may be impaired. To the extent Pembina is required to use cash flow to finance capital
expenditures or acquisitions or to repay existing debt as it becomes due, the level of dividends payable may
be reduced.
Commodity price risk
Pembina's Midstream business includes activities related
to product storage, terminalling, and hub services. These activities expose Pembina to certain risks including that Pembina may
experience volatility in revenue due to fluctuations in commodity prices. Primarily, Pembina enters into contracts to purchase
and sell crude oil at floating market prices. The prices of products that are marketed by Pembina are subject to volatility as
a result of such factors as seasonal demand changes, extreme weather conditions, general economic conditions, changes in crude
oil markets and other factors. Pembina manages its risk exposure by balancing purchases and sales to lock-in margins. Notwithstanding
Pembina's management of price and quality risk, marketing margins for crude oil can vary and have varied significantly from period
to period. This variability could have an adverse effect on the results of Pembina's commercial Midstream business and its overall
results of operations. To assist in effectively smoothing that variability inherent in this business, Midstream is investing in
assets that have a fee-based revenue component, and is looking to expand this area going forward.
The Midstream business is also exposed to possible price
declines between the time Pembina purchases NGL feedstock and sells NGL products, and to decreasing frac spreads. Frac spread is
the difference between the selling prices for NGL products and the cost of NGL sourced from natural gas and acquired at natural
gas-related prices. Frac spreads can change significantly from period to period depending on the relationship between crude oil
and natural gas prices (the "frac spread ratio"), absolute commodity prices, and changes in the Canadian to U.S. dollar
foreign exchange rate. There is also a differential between NGL product prices and crude oil prices which can change margins realized
for midstream products separate from frac spread ratio changes. The amount of profit or loss made on the extraction portion of
the NGL midstream business will generally increase or decrease with frac spreads. This exposure could result in variability of
cash flow generated by the NGL midstream business, which could affect Pembina and the cash dividends of Pembina.
Pembina
Pipeline Corporation
Pembina responds to commodity price risk by using an
active Risk Management Program to fix revenues on a minimum of 50 percent of the committed term natural gas supply costs. Pembina's
Midstream business is also exposed to variability in quality, time and location differentials. The Company utilizes financial derivative
instruments as part of its overall risk management strategy to assist in managing the exposure to commodity price risk as a result
of these activities. The Company does not trade financial instruments for speculative purposes.
Foreign exchange risk
Pembina's commodity-related cash flows and some of its
capital are subject to currency risk, primarily arising from the denomination of specific earnings and cash flows in U.S. dollars.
Pembina responds to this risk using an active Risk Management Program to exchange foreign currency for domestic currency at a fixed
rate.
Interest rate risk
Pembina has floating interest rate debt which subjects
the Company to interest rate risk. Pembina responds to this risk under the active Risk Management Program by entering into financial
derivative contracts to fix interest rates.
Reputation
Reputational risk is the potential for market or company-specific
events that could result in the deterioration of Pembina's reputation with key stakeholders. The potential for harming Pembina's
corporate reputation exists in every business decision and all risks can have an impact on reputation, which in turn can negatively
impact Pembina's business and its securities. Reputational risk cannot be managed in isolation from other forms of risk. Credit,
market, operational, insurance, liquidity, regulatory and legal risks, among others, must all be managed effectively to safeguard
Pembina's reputation. Pembina's reputation could also be impacted by the actions and activities of other companies operating in
the energy industry, particularly other energy infrastructure providers, over which it has no control. In particular, Pembina's
reputation could be impacted by negative publicity related to pipeline incidents, unpopular expansion plans or new projects, and
due to opposition from organizations opposed to energy, oil sands and pipeline development and particularly shipment of production
from oil sands regions. Negative impacts from a compromised reputation could include revenue loss, reduction in customer base,
delays in regulatory approvals on growth projects, and decreased value of Pembina's securities.
Pembina
Pipeline Corporation
Environmental Costs and Liabilities
Pembina's operations, facilities and petroleum product shipments
are subject to extensive national, regional and local environmental, health and safety laws and regulations governing, among other
things, discharges to air, land and water, the handling and storage of petroleum products and hazardous materials, waste disposal,
the protection of employee health, safety and the environment, and the investigation and remediation of contamination. Pembina's
facilities could experience incidents, malfunctions or other unplanned events that result in spills or emissions in excess of permitted
levels and result in personal injury, fines, penalties or other sanctions and property damage. Pembina could also incur liability
in the future for environmental contamination associated with past and present activities and properties. The facilities and pipelines
must maintain a number of environmental and other permits from various governmental authorities in order to operate, and these
facilities are subject to inspection from time to time. Failure to maintain compliance with these requirements could result in
operational interruptions, fines or penalties, or the need to install potentially costly pollution control technology. Licenses
and permits must be renewed from time to time and there is no guarantee that the license will be renewed on the same or similar
conditions. There can be no assurance that we will be able to obtain all of the permits, licenses, registrations, approvals and
authorizations that may be required to conduct operations that it may wish to undertake. Further, if at any time regulatory authorities
deem any one of Pembina's pipelines or facilities unsafe or not in compliance with applicable laws, they may order it shut down.
While Pembina believes its current operations are in compliance
with all applicable significant environmental and safety regulations, there can be no assurance that substantial costs or liabilities
will not be incurred. Moreover, it is possible that other developments, such as increasingly strict environmental and safety laws,
regulations and enforcement policies thereunder, claims for damages to persons or property resulting from Pembina's operations,
and the discovery of pre-existing environmental liabilities in relation to any of the Company's existing or future properties or
operations, could result in significant costs and liabilities to Pembina. In addition, the costs of environmental liabilities in
relation to spill sites of which Pembina is currently aware could be greater than the Company currently anticipates, and any such
differences could be substantial. If Pembina is not able to recover the resulting costs or increased costs through insurance or
increased tariffs, cash flow available to pay dividends to shareholders and to service obligations under Pembina's debt securities
and other debt obligations could be adversely affected.
While Pembina maintains insurance in respect of damage
caused by seepage or pollution in an amount it considers prudent and in accordance with industry standards, certain provisions
of such insurance may limit the availability thereof in respect of certain occurrences unless they are discovered within fixed
time periods, which typically range from 72 hours to 30 days. Although the Company believes it has adequate leak detection systems
in place to monitor a significant spill of product, if Pembina is unaware of a problem or is unable to locate the problem within
the relevant time period, insurance coverage may not be available.
Abandonment Costs
Pembina is responsible for compliance with all applicable
laws and regulations regarding the abandonment of its pipeline systems and other assets at the end of their economic life, and
these abandonment costs may be substantial. The proceeds of the disposition of certain assets, including, in respect of certain
pipeline systems, line fill, may be available to offset abandonment costs. While Pembina estimates future abandonment costs, actual
costs may differ. Pembina may, in the future, determine it prudent or be required by applicable laws or regulations to establish
and fund additional reclamation funds to provide for payment of future abandonment costs. Such reserves could decrease cash flow
available for dividends to shareholders and to service obligations under Pembina's debt securities and other debt obligations.
Pembina
Pipeline Corporation
Pembina has complied with the National Energy Board ("NEB")
requirements on its NEB-regulated pipelines for the creation of abandonment funds and has completed the compliance-based filings
that are required under the applicable NEB rules and regulations regarding the abandonment of its pipeline systems and assets.
Pembina also has a 50 percent ownership in a NEB-regulated pipeline lateral which is operated by a joint venture partner. The joint
venture partner is responsible for the submission of the NEB-compliance based filings for this asset, which Pembina is in the process
of reviewing. Pembina will continue to monitor any regulatory changes prior to the next five-year review, and will complete the
annual reporting as required by the NEB. Pembina-operated rate regulated pipelines account for less than 206 km, or three percent,
of the total infrastructure in the Conventional Pipelines business.
Reserve Replacement, Throughput and Product Demand
Pembina's Conventional Pipeline tariff revenue is based upon a
variety of tolling arrangements, including fee-for-service contracts, cost-of-service agreements and market-based tolls. As a result,
certain pipeline tariff revenue is heavily dependent upon throughput levels of crude oil, NGL and condensate. Future throughput
on Pembina's crude oil and NGL pipelines and replacement of oil and gas reserves in the service areas will be dependent upon the
activities of producers operating in those areas as they relate to exploiting their existing reserve bases and exploring for and
developing additional reserves, and technological improvements leading to increased recovery rates. Without reserve additions,
or expansion of the service areas, throughput on such pipelines would decline over time as reserves are depleted. As oil and gas
reserves are depleted, production costs may increase relative to the value of the remaining reserves in place, causing producers
to shut-in production or seek out lower cost alternatives for transportation. If the level of tariffs collected by Pembina decreases
as a result, cash flow available for dividends to shareholders and to service obligations under Pembina's debt securities and other
debt obligations could be adversely affected.
Over the long term, Pembina's business will depend, in
part, on the level of demand for crude oil, condensate, NGL and natural gas in the markets served by the crude oil and NGL pipelines
and gas processing and gathering infrastructure in which the Company has an interest. Recent global economic events have had a
substantial downward effect on the prices of such products and Pembina cannot predict the impact of future economic conditions
on the energy and petrochemical industries or future demand for and prices of natural gas, crude oil, condensate and NGL. As lower
commodity prices reduce drilling activity, the supply growth that has been fuelling the growth in pipeline infrastructure could
slow down. These factors could negatively affect pipeline and processing capacity value as transportation and processing capacity
becomes more abundant. Future prices of these products are determined by supply and demand factors, including weather and general
economic conditions as well as economic, political and other conditions in other oil and natural gas regions, all of which are
beyond Pembina's control.
The volumes of natural gas processed through Pembina's
gas processing assets and of NGL and other products transported in the pipelines depend on production of natural gas in the areas
serviced by the business and pipelines. Without reserve additions, production will decline over time as reserves are depleted and
production costs may rise. Producers may shut-in production at lower product prices or higher production costs. Producers in the
areas serviced by the business may not be successful in exploring for and developing additional reserves or achieving technological
improvements to increase recovery rates, and the gas plants and the pipelines may not be able to maintain existing volumes of throughput.
Commodity prices may not remain at a level which encourages producers to explore for and develop additional reserves or produce
existing marginal reserves. Given the current adverse global economic conditions, the prices of these products have decreased substantially
from recently high levels and the risks that producers will not seek reserves additions has heightened. Lower production volumes
will also increase the competition for natural gas supply at gas processing plants which could result in higher shrinkage premiums
being paid to natural gas producers.
Pembina
Pipeline Corporation
The rate and timing of production from proven natural gas reserves
tied into the gas plants is at the discretion of the producers and is subject to regulatory constraints. The producers have no
obligation to produce natural gas from these lands. Pembina's gas processing assets are connected to various third-party trunk
line systems. Operational disruptions or apportionment on those third-party systems may prevent the full utilization of the business.
Over the long-term, Pembina's business will depend, in part, on
the level of demand for NGL and natural gas in the geographic areas in which deliveries are made by pipelines and the ability and
willingness of shippers having access or rights to utilize the pipelines to supply such demand. Pembina cannot predict the impact
of future economic conditions, fuel conservation measures, alternative fuel requirements, governmental regulation or technological
advances in fuel economy and energy generation devices, all of which could reduce the demand for natural gas and NGL.
Completion and Timing of Expansion Projects
The successful completion of Pembina's growth and expansion
projects is dependent on a number of factors outside of Pembina's control, including the impact of general economic, business
and market conditions, availability of capital at attractive rates, receipt of regulatory approvals, reaching long-term commercial
arrangements with customers in respect of certain portions of the expansions, construction schedules and costs that may change
depending on supply, demand and/or inflation, labour, materials and equipment availability, contractor non-performance, weather
conditions, and cost of engineering services. There is no certainty, nor can Pembina provide any assurance, that necessary regulatory
approvals will be received on terms that maintain the expected return on investment associated with a specific projects, or at
all, or that satisfactory commercial arrangements with customers will be reached where needed on a timely basis or at all, or
that third parties will comply with contractual obligations in a timely manner. Factors such as special interest group opposition,
Aboriginal, landowner and other stakeholder consultation requirements, changes in shipper support over time, and changes to the
legislative or regulatory framework could all have an impact on contractual and regulatory milestones being accomplished. As a
result, the cost estimates and completion dates for Pembina's major projects can change during different stages of the project.
Early stage projects face additional challenges including securing leases, easements, rights-of-way, permits and/or licenses from
landowners or governmental authorities allowing access for such purposes, as well as Aboriginal consultation requirements. Accordingly,
actual costs and timing estimates may vary from initial estimates and these differences can be significant, and certain projects
may not proceed as planned, or at all. Further, there is a risk that maintenance will be required more often than currently planned
or that significant maintenance capital projects could arise that were not previously anticipated.
Under most of Pembina's construction and operation
agreements, the Company is obligated to construct the facilities regardless of delays and cost increases and Pembina bears
the risk for any cost overruns, and future agreements with customers entered into with respect to expansions may contain
similar conditions. While Pembina is not currently aware of any significant undisclosed cost overruns at the date hereof, any
such cost overruns in the future may adversely affect the economics of particular projects, as well as Pembina's business
operations and financial results, and could reduce Pembina's expected return on investment which, in turn, could reduce the
level of cash available for dividends and to service obligations under Pembina's debt securities and other
debt obligations.
Pembina
Pipeline Corporation
Possible Failure to Realize Anticipated Benefits of
Corporate Strategy
Pembina
evaluates the value proposition for expansion projects, new acquisitions or divestitures on an ongoing basis. Planning and investment
analysis is highly dependent on accurate forecasting assumptions and to the extent that these assumptions do not materialize,
financial performance may be lower or more volatile than expected. Volatility in the economy, change in cost estimates, project
scoping and risk assessment could result in a loss in profits for Pembina. Large-scale acquisitions in particular may involve
significant pricing and integration risk. As part of its ongoing strategy, Pembina may complete acquisitions of assets or other
entities in the future. Achieving the benefits of completed and future acquisitions depends in part on successfully consolidating
functions and integrating operations, procedures and personnel in a timely and efficient manner, as well as Pembina's ability
to realize the anticipated growth opportunities and synergies from combining the acquired businesses and operations with those
of Pembina. The integration of acquired businesses and entities requires the dedication of substantial management effort,
time and resources which may divert management's focus and resources from other strategic opportunities and from operational matters
during this process. The integration process may result in the loss of key employees and the disruption of ongoing business, customer
and employee relationships that may adversely affect Pembina's ability to achieve the anticipated benefits of any acquisitions.
Acquisitions may also expose Pembina to additional risks, including entry into markets or businesses in which Pembina has little
or no direct prior experience, increased credit risks through the assumption of additional debt, costs and contingent liabilities
and exposure to liabilities of the acquired business or assets.
Debt Service
At the end of 2014, Pembina had exposure to floating interest
rates on $510 million in debt, which was subsequently repaid in February 2015. Debt exposure is managed by using derivative financial
instruments. A one percent change in short-term interest rates would have an annualized impact of approximately $4 million on net
cash flows.
Variations in interest rates and scheduled principal repayments,
if required, under the terms of the banking agreements could result in significant changes in the amounts required to be applied
to debt service before payment of any dividends. Certain covenants in the agreements with the lenders may also limit payments
and dividends paid by Pembina.
Pembina and its subsidiaries are permitted to borrow funds to
finance the purchase of pipelines and other energy infrastructure assets, to fund capital expenditures and other financial obligations
or expenditures in respect of those assets and for working capital purposes. Amounts paid in respect of interest and principal
on debt incurred in respect of those assets reduce the amount of cash flow available for common share dividends. Variations in
interest rates and scheduled principal repayments for which Pembina may not be able to refinance at favourable rates, or at all,
could result in significant changes in the amount required to be applied to service debt, which could have detrimental effects
on the amount of cash available for common share dividends. Pembina, on a consolidated basis, is also required to meet certain
financial covenants under the credit facilities and is subject to customary restrictions on its operations and activities, including
restrictions on the granting of security, incurring indebtedness and the sale of its assets.
Pembina
Pipeline Corporation
The lenders under Pembina's unsecured credit facilities have also been provided with guarantees and subordination
agreements. If Pembina becomes unable to pay its debt service charges or otherwise commits an event of default such as bankruptcy,
payments to all of the lenders will rank in priority to dividends and payments to holders of convertible debentures.
Although Pembina believes the existing credit facilities
are sufficient for immediate requirements, there can be no assurance that the amount will be adequate for the future financial
obligations of Pembina or that additional funds will be able to be obtained on terms favourable to Pembina or at all.
Selected Quarterly Operating Information
|
2014 |
2013 |
2012 |
|
Q4 |
Q3 |
Q2 |
Q1 |
Q4 |
Q3 |
Q2 |
Q1 |
Q4 |
Average volume
(mbpd unless stated otherwise) |
|
|
|
|
|
|
|
|
|
Conventional Pipelines throughput |
612 |
564 |
573 |
553 |
500 |
489 |
484 |
494 |
480 |
Oil Sands & Heavy Oil contracted capacity, end of period |
880 |
880 |
880 |
880 |
880 |
880 |
870 |
870 |
870 |
Gas Services processing (mboe/d)(1) |
97 |
71 |
87 |
88 |
66 |
48 |
48 |
50 |
46 |
NGL sales volume |
130 |
107 |
105 |
133 |
122 |
99 |
94 |
123 |
116 |
Total |
1,719 |
1,622 |
1,645 |
1,654 |
1,568 |
1,516 |
1,496 |
1,537 |
1,512 |
| (1) | Net to Pembina. Converted to mboe/d from MMcf/d at a 6:1 ratio. |
Pembina
Pipeline Corporation
Selected Quarterly Financial Information
|
2014 |
2013 |
2012 |
($ millions, except where noted) |
Q4 |
Q3 |
Q2 |
Q1 |
Q4 |
Q3 |
Q2 |
Q1 |
Q4 |
Revenue |
1,259 |
1,445 |
1,606 |
1,759 |
1,282 |
1,300 |
1,175 |
1,249 |
1,265 |
Operating expenses |
117 |
98 |
91 |
95 |
101 |
87 |
91 |
77 |
86 |
Cost of goods sold, including product purchases |
955 |
1,087 |
1,246 |
1,312 |
903 |
983 |
880 |
934 |
968 |
Realized gain (loss) on commodity-related derivative financial instruments |
8 |
4 |
|
(2) |
(3) |
(4) |
4 |
2 |
11 |
Operating margin(1) |
195 |
264 |
269 |
350 |
275 |
226 |
208 |
240 |
222 |
Depreciation and amortization included in operations |
62 |
51 |
51 |
52 |
42 |
47 |
32 |
42 |
48 |
Unrealized gain (loss) on commodity-related derivative financial instruments |
11 |
3 |
(4) |
4 |
2 |
(2) |
1 |
6 |
(2) |
Gross profit |
144 |
216 |
214 |
302 |
235 |
177 |
177 |
204 |
172 |
EBITDA(1) |
170 |
199 |
235 |
316 |
235 |
201 |
185 |
211 |
198 |
Cash flow from operating activities |
196 |
188 |
155 |
261 |
208 |
94 |
151 |
232 |
145 |
Cash flow from operating activities per
common share – basic
(dollars)(1) |
0.58 |
0.57 |
0.48 |
0.82 |
0.66 |
0.30 |
0.49 |
0.78 |
0.50 |
Adjusted cash flow from operating activities(1) |
164 |
158 |
191 |
264 |
185 |
188 |
150 |
202 |
172 |
Adjusted cash flow from operating activities per common share – basic(1) (dollars) |
0.49 |
0.48 |
0.59 |
0.83 |
0.59 |
0.61 |
0.49 |
0.68 |
0.59 |
Earnings for the period |
84 |
75 |
77 |
147 |
95 |
72 |
93 |
91 |
81 |
Earnings per common share – basic (dollars) |
0.22 |
0.20 |
0.21 |
0.44 |
0.29 |
0.22 |
0.30 |
0.30 |
0.28 |
Earnings per common share – diluted (dollars) |
0.22 |
0.20 |
0.21 |
0.41 |
0.29 |
0.22 |
0.30 |
0.30 |
0.28 |
Common shares outstanding (millions): |
|
|
|
|
|
|
|
|
|
Weighted average – basic |
335 |
327 |
323 |
319 |
314 |
311 |
308 |
296 |
292 |
Weighted average – diluted |
336 |
329 |
325 |
340 |
315 |
312 |
309 |
297 |
293 |
End of period |
338 |
329 |
325 |
321 |
315 |
312 |
310 |
307 |
293 |
Common share dividends declared |
146 |
143 |
140 |
134 |
132 |
129 |
125 |
121 |
118 |
Common dividends per share
(dollars) |
0.435 |
0.435 |
0.430 |
0.420 |
0.420 |
0.415 |
0.405 |
0.405 |
0.405 |
Preferred share dividends declared |
10 |
8 |
7 |
6 |
5 |
|
|
|
|
| (1) | Refer to "Non-GAAP and Additional GAAP Measures." |
During the periods in the previous table, Pembina's
results were impacted by the following factors and trends:
| · | Increased oil production from customers operating in the Montney,
Cardium and Deep Basin Cretaceous formations of west central Alberta, which resulted in increased service offerings, new connections
and capacity expansions in these areas; |
| · | Increased liquids-rich natural gas production from producers in the
WCSB (Deep Basin, Montney and emerging Duvernay Shale plays), which resulted in increased gas gathering and processing at the Company's
Gas Services assets, additional associated NGL transported on its pipelines and expansion of its fractionation capacity; |
| · | New assets being placed into service; |
Pembina
Pipeline Corporation
| · | An improved propane market in North America throughout the fourth
quarter of 2013 and first quarter of 2014 and an overall significantly weaker commodity market (especially the weaker propane market)
during the fourth quarter of 2014; |
| · | Increased shares outstanding due to: the DRIP, debenture conversions,
the Vantage Acquisition and the bought deal equity financing in the first quarter of 2013; and |
| · | Increased preferred share dividend payments due to additional preferred
shares issued in the first and third quarter of 2014. |
Selected Annual Financial Information
($ millions, except where noted) |
2014 |
2013 |
2012 |
Revenue |
6,069 |
5,006 |
3,427 |
Earnings |
383 |
351 |
225 |
Per common share – basic (dollars) |
1.07 |
1.12 |
0.87 |
Per common share – diluted (dollars) |
1.06 |
1.12 |
0.87 |
Total assets |
11,262 |
9,142 |
8,284 |
Long-term financial liabilities(1) |
3,428 |
2,454 |
3,005 |
Declared dividends per common share ($ per share) |
1.72 |
1.65 |
1.61 |
Preferred share dividends declared |
31 |
5 |
|
| (1) | Includes loans and borrowings, convertible debentures, long-term derivative financial instruments, deferred revenue, provisions
and employee benefits, share-based payments and other. |
Additional
Information
Additional information about Pembina filed with Canadian
and U.S. securities commissions, including quarterly and annual reports, AIFs (filed with the U.S. Securities and Exchange Commission
under Form 40-F), Management Information Circulars and financial statements can be found online at www.sedar.com, www.sec.gov and
at Pembina's website at www.pembina.com.
Non-GAAP and Additional GAAP Measures
Throughout this MD&A, Pembina has used the following
terms that are not defined by GAAP but are used by management to evaluate the performance of Pembina and its businesses. Since
non-GAAP and additional GAAP measures do not have a standardized meaning prescribed by GAAP and are therefore unlikely to be comparable
to similar measures presented by other companies, securities regulations require that non-GAAP and additional GAAP measures are
clearly defined, qualified and reconciled to their nearest GAAP measure. Except as otherwise indicated, these non-GAAP and additional
GAAP measures are calculated and disclosed on a consistent basis from period to period. Specific adjusting items may only be relevant
in certain periods.
The intent of non-GAAP and additional GAAP measures
is to provide additional useful information to investors and analysts though the measures do not have any standardized meaning
under IFRS. The measures should not, therefore, be considered in isolation or used in substitute for measures of performance prepared
in accordance with IFRS. Other issuers may calculate these non-GAAP and additional GAAP measures differently.
Investors should be cautioned that net revenue, EBITDA,
adjusted cash flow from operating activities, operating margin and total enterprise value should not be construed as alternatives
to earnings, cash flow from operating activities or other measures of financial results determined in accordance with GAAP as an
indicator of Pembina's performance.
Pembina
Pipeline Corporation
Net revenue
Net revenue is a non-GAAP financial measure which is
defined as total revenue less cost of goods sold including product purchases. Management believes that net revenue provides investors
with a single measure to indicate the margin on sales before non-product operating expenses that is comparable between periods.
Management utilizes net revenue to compare consecutive results, particularly in the Midstream business, to aggregate revenue generated
by each of the Company's businesses and to set comparable objectives.
|
3 Months Ended
December 31
(unaudited) |
12 Months Ended
December 31 |
($ millions) |
2014 |
2013 |
2014 |
2013 |
Revenue |
1,259 |
1,282 |
6,069 |
5,006 |
Cost of goods sold, including product purchases |
955 |
903 |
4,600 |
3,700 |
Net revenue |
304 |
379 |
1,469 |
1,306 |
EBITDA
EBITDA is a non-GAAP measure and is calculated as results
from operating activities plus share of profit (loss) from equity accounted investees (before tax, depreciation and amortization)
plus depreciation and amortization (included in operations and general and administrative expense) and unrealized gains or losses
on commodity-related derivative financial instruments. The exclusion of unrealized gains or losses on commodity-related derivative
financial instruments eliminates the non-cash impact.
Management believes that EBITDA provides useful information
to investors as it is an important indicator of the issuer's ability to generate liquidity through cash flow from operating activities.
EBITDA is also used by investors and analysts for assessing financial performance and for the purpose of valuing an issuer, including
calculating financial and leverage ratios. Management utilizes EBITDA to set objectives and as a key performance indicator of the
Company's success.
|
3 Months Ended
December 31
(unaudited) |
12 Months Ended
December 31 |
($ millions, except per share amounts) |
2014 |
2013 |
2014 |
2013 |
Results from operating activities |
114 |
191 |
702 |
660 |
Share of profit from equity accounted investees
(before tax, depreciation and amortization) |
2 |
2 |
6 |
8 |
Depreciation and amortization |
65 |
44 |
226 |
171 |
Unrealized gain on commodity-related derivative financial instruments |
(11) |
(2) |
(14) |
(7) |
EBITDA |
170 |
235 |
920 |
832 |
EBITDA per common share – basic (dollars) |
0.51 |
0.75 |
2.82 |
2.71 |
Adjusted cash flow from operating activities
Adjusted cash flow from operating
activities is a non-GAAP measure which is defined as cash flow from operating activities plus the change in non-cash operating
working capital, adjusting for current tax and share-based payment expenses, and less preferred share dividends declared. Adjusted
cash flow from operating activities excludes preferred share dividends because they are not attributable to common shareholders.
The calculation has been modified to include current tax and share-based payment expense as it allows management to better assess
the obligations discussed below. Management believes that adjusted cash flow from operating activities provides comparable information
to investors for assessing financial performance during each reporting period.
Pembina
Pipeline Corporation
Management utilizes adjusted cash flow from operating
activities to set objectives and as a key performance indicator of the Company's ability to meet interest obligations, dividend
payments and other commitments.
|
3 Months Ended
December 31
(unaudited) |
12 Months Ended
December 31 |
($ millions, except per share amounts) |
2014 |
2013 |
2014 |
2013 |
Cash flow from operating activities |
196 |
208 |
800 |
685 |
Add (deduct): |
|
|
|
|
Change in non-cash operating working capital |
(14) |
10 |
33 |
96 |
Current tax expenses |
(28) |
(19) |
(103) |
(38) |
Tax paid |
11 |
|
81 |
|
Accrued share-based payments |
9 |
(9) |
(33) |
(30) |
Share-based compensation payment |
|
|
30 |
17 |
Preferred share dividends declared |
(10) |
(5) |
(31) |
(5) |
Adjusted cash flow from operating activities |
164 |
185 |
777 |
725 |
Cash flow from operating activities per common share – basic (dollars) |
0.58 |
0.66 |
2.45 |
2.23 |
Adjusted cash flow from operating activities per common share – basic (dollars) |
0.49 |
0.59 |
2.38 |
2.36 |
Operating margin
Operating margin is an additional GAAP measure which is
defined as gross profit before depreciation and amortization included in operations and unrealized gain/loss on commodity-related
derivative financial instruments. Management believes that operating margin provides useful information to investors for assessing
the financial performance of the Company's operations. Management utilizes operating margin in setting objectives and views it
as a key performance indicator of the Company's success.
Reconciliation of operating margin to gross profit:
|
3 Months Ended
December 31
(unaudited) |
12 Months Ended
December 31 |
($ millions) |
2014 |
2013 |
2014 |
2013 |
Revenue |
1,259 |
1,282 |
6,069 |
5,006 |
Cost of sales (excluding depreciation and amortization included in operations) |
|
|
|
|
Operating expenses |
117 |
101 |
401 |
356 |
Cost of goods sold, including product purchases |
955 |
903 |
4,600 |
3,700 |
Realized gain (loss) on commodity-related derivative financial instruments |
8 |
(3) |
10 |
(1) |
Operating margin |
195 |
275 |
1,078 |
949 |
Depreciation and amortization included in operations |
62 |
42 |
216 |
163 |
Unrealized gain on commodity-related derivative financial instruments |
11 |
2 |
14 |
7 |
Gross profit |
144 |
235 |
876 |
793 |
Total enterprise value
Total enterprise value is a non-GAAP measure which is
calculated by aggregating the market value of common shares, preferred shares and convertible debentures at a specific date plus
senior debt less cash and cash equivalents. Management believes that total enterprise value provides useful information to investors
to assess the overall market value of the Company and as an input to calculate financial ratios. Management utilizes total enterprise
value to assess Pembina's growth.
Pembina
Pipeline Corporation
Forward-Looking Statements &
Information
In the interest of providing
Pembina's securityholders and potential investors with information regarding Pembina, including management's assessment of the
Company's future plans and operations, certain statements contained in this MD&A constitute forward-looking statements or
information (collectively, "forward-looking statements") within the meaning of the "safe harbour" provisions
of applicable securities legislation. Forward-looking statements are typically identified by words such as "anticipate",
"continue", "estimate", "expect", "may", "will", "project", "should",
"could", "believe", "plan", "intend", "target", "view", "maintain",
"projection", "schedule", "objective", "strategy", "likely", "potential",
"outlook", "goal", "would", and similar expressions suggesting future events or future performance.
By their nature, such forward-looking
statements involve known and unknown risks, uncertainties and other factors that may cause actual results or events to differ
materially from those anticipated in such forward-looking statements. Pembina believes the expectations reflected in those forward-looking
statements are reasonable but no assurance can be given that these expectations will prove to be correct and such forward-looking
statements included in this MD&A should not be unduly relied upon. These statements speak only as of the date of the MD&A.
In particular, this MD&A
contains forward-looking statements, including certain financial outlook, pertaining to the following:
| · | the
future levels of cash dividends that Pembina intends to pay to its shareholders, the
dividend payment date and the tax treatment thereof; |
| · | planning,
construction, capital expenditure estimates, schedules, regulatory and environmental
applications and approvals, expected capacity, incremental volumes, in-service dates,
rights, activities, benefits and operations with respect to new construction of, or expansions
on existing, pipelines, gas services facilities, fractionation facilities, terminalling, storage and hub facilities
and other facilities or energy infrastructure; |
| · | pipeline,
processing, fractionation and storage facility and system operations and throughput levels; |
| · | Pembina's
strategy and the development and expected timing of new business initiatives and growth
opportunities; |
| · | Pembina's
strategy for payment of future abandonment costs; |
| · | increased
throughput potential due to increased oil and gas industry activity and new connections
and other initiatives on Pembina's pipelines and at Pembina's facilities; |
| · | expected
future cash flows, future contractual obligations, future financing options, availability
of capital to fund growth plans, operating obligations and dividends and the use of proceeds
from financings; |
| · | expected
contributions and expenses pertaining to Pembina's pension plans; |
| · | anticipated
impact of acquisitions on the Company's future cash flows, financial position and commercial
opportunities; |
| · | processing, transportation, fractionation, storage and services
commitments and contracts; and |
| · | the
impact of share price and discount rate on annual share-based incentive expense. |
Various factors or assumptions
are typically applied by Pembina in drawing conclusions or making the forecasts, projections, predictions or estimations set out
in forward-looking statements based on information currently available to Pembina. These factors and assumptions include, but
are not limited to:
| · | oil
and gas industry exploration and development activity levels and the geographic region
of such activity; |
| · | the
success of Pembina's operations; |
| · | prevailing
commodity prices, interest rates and exchange rates and the ability of Pembina to maintain
current credit ratings; |
| · | the
availability of capital to fund future capital requirements relating to existing assets
and projects; |
| · | expectations
regarding participation in Pembina's DRIP and pension plan; |
| · | oil
and gas industry compensation levels; |
| · | geotechnical
and integrity costs; |
| · | in
respect of current developments, expansions, planned capital expenditures, completion
dates and capacity expectations: that third parties will provide any necessary support;
that any third-party projects relating to Pembina's growth projects will be sanctioned
and completed as expected; that any required commercial agreements can be reached; that
all required regulatory and environmental approvals can be obtained on the necessary
terms in a timely manner; that counterparties will comply with contracts in a timely
manner; that there are no unforeseen events preventing the performance of contracts or
the completion of the relevant facilities; and that there are no unforeseen material
costs relating to the facilities which are not recoverable from customers; |
| · | in
respect of the stability of Pembina's dividends: prevailing commodity prices, margins
and exchange rates; that Pembina's future results of operations will be consistent with
past performance and management expectations in relation thereto; the continued availability
of capital at attractive prices to fund future capital requirements relating to existing
assets and projects, including but not limited to future capital expenditures relating
to expansion, upgrades and maintenance shutdowns; the success of growth projects; future
operating costs; that counterparties to material agreements will continue to perform
in a timely manner; that there are no unforeseen events preventing the performance of
contracts; and that there are no unforeseen material construction or other costs related
to current growth projects or current operations; |
| · | prevailing
regulatory, tax and environmental laws and regulations; and |
| · | the
amount of future liabilities relating to environmental incidents and the availability
of coverage under Pembina's insurance policies (including in respect of Pembina's business
interruption insurance policy). |
The actual results of Pembina
could differ materially from those anticipated in these forward-looking statements as a result of the material risk factors set
forth below:
| · | the
regulatory environment and decisions; |
| · | the
impact of competitive entities and pricing; |
| · | labour
and material shortages; |
| · | reliance
on key relationships and agreements and the outcome of stakeholder engagement; |
| · | the
strength and operations of the oil and natural gas production industry and related commodity
prices; |
| · | non-performance
or default by counterparties to agreements which Pembina or one or more of its affiliates
has entered into in respect of its business; |
| · | actions
by governmental or regulatory authorities including changes in tax laws and treatment,
changes in royalty rates or increased environmental regulation; |
| · | fluctuations
in operating results; |
| · | adverse
general economic and market conditions in Canada, North America and elsewhere, including
changes in interest rates, foreign currency exchange rates and commodity prices; and |
| · | the
other factors discussed under "Risk Factors" in Pembina's AIF for the year
ended December 31, 2014. Pembina's MD&A and AIF are available at www.pembina.com
and in Canada under Pembina's company profile on www.sedar.com and in the U.S. on the
Company's profile at www.sec.gov. |
These factors should not be
construed as exhaustive. Unless required by law, Pembina does not undertake any obligation to publicly update or revise any forward-looking
statements, whether as a result of new information, future events or otherwise. Any forward-looking statements contained herein
are expressly qualified by this cautionary statement.
Exhibit 99.3
Pembina
Pipeline Corporation
MANAGEMENT'S
REPORT
The audited Consolidated Financial Statements
of Pembina Pipeline Corporation (the "Company" or "Pembina") are the responsibility of Pembina's management.
The financial statements have been prepared in accordance with International Financial Reporting Standards as issued by the International
Accounting Standards Board, using management's best estimates and judgments, where appropriate.
Management is responsible for the reliability
and integrity of the financial statements, the notes to the financial statements and other financial information contained in this
report. In the preparation of these financial statements, estimates are sometimes necessary because a precise determination of
certain assets and liabilities is dependent on future events. Management believes such estimates have been based on careful judgments
and have been properly reflected in the accompanying financial statements.
Management's Assessment of Internal Controls
over Financial Reporting
Management is responsible for
establishing and maintaining adequate internal control over financial reporting, as defined
in Rules 13a – 15(f) and 15d – 15(f) under the United States Securities Exchange Act of 1934, as amended (the "Exchange
Act") and under National Instrument 52-109 Certification of Disclosure in Issuers' Annual and Interim Filings ("NI 52-109").
Management, including the Chief Executive Officer ("CEO")
and the Chief Financial Officer ("CFO"), has conducted an evaluation of Pembina's internal control over financial reporting
based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations
of the Treadway Commission (COSO).
Further, there has been no change in the Company's internal
control over financial reporting that occurred during the year covered by this Annual Report that has materially affected, or are
reasonably likely to materially affect, Pembina's internal control over financial reporting.
Based on management's assessment as at December 31, 2014, management
has concluded that Pembina's internal control over financial reporting is effective.
Due to its inherent limitations,
internal control over financial reporting is not intended to provide absolute assurance
that a misstatement of Pembina's financial statements would be prevented or detected. Further,
the evaluation of the effectiveness of internal control over financial reporting was made as of a specific date, and continued
effectiveness in future periods is subject to the risks that controls may become inadequate.
The Board of Directors of the Company (the
"Board") is responsible for ensuring management fulfils its responsibilities for financial reporting and internal control.
The Board is assisted in exercising its responsibilities through the Audit Committee, which consists of four non-management directors.
The Audit Committee meets periodically with management and the auditors to satisfy itself that management's responsibilities are
properly discharged, to review the financial statements and to recommend approval of the financial statements to the Board.
Pembina
Pipeline Corporation
KPMG LLP, the independent auditors, have audited
the Company's financial statements in accordance with Canadian generally accepted auditing standards and the standards of the Public
Company Accounting Oversight Board (United States), and have also audited the effectiveness of Pembina's internal control over
financial reporting as of December 31, 2014 and has included an attestation report on management's assessment in their reports
which follow. The independent auditors have full and unrestricted access to the Audit Committee to discuss their audit and their
related findings.
|
|
/s/ M. H. Dilger |
/s/ J. Scott Burrows |
M. H. Dilger |
J. Scott Burrows |
President and Chief Executive Officer |
Vice President, Finance and Chief Financial Officer |
Pembina Pipeline Corporation |
Pembina Pipeline Corporation |
|
|
February 26, 2015 |
|
Pembina
Pipeline Corporation
|
kpmg LLP |
Telephone |
(403) 691-8000 |
|
205 - 5th Avenue SW |
Fax |
(403) 691-8008 |
|
Suite 3100, Bow Valley Square 2 |
www.kpmg.ca |
|
Calgary AB |
|
|
|
T2P 4B9 |
|
|
INDEPENDENT
AUDITORS' REPORT OF REGISTERED PUBLIC ACCOUNTING FIRM
To the Shareholders and Board of Directors of
Pembina Pipeline Corporation
We have audited the accompanying consolidated
financial statements of Pembina Pipeline Corporation, which comprise the consolidated statements of financial position as at December
31, 2014 and December 31, 2013, the consolidated statements of earnings and comprehensive income, changes in equity and cash
flows for the years then ended, and notes, comprising a summary of significant accounting policies and other explanatory information.
Management's Responsibility for the Consolidated Financial
Statements
Management is responsible for the preparation
and fair presentation of these consolidated financial statements in accordance with International Financial Reporting Standards
as issued by the International Accounting Standards Board, and for such internal control as management determines is necessary
to enable the preparation of consolidated financial statements that are free from material misstatement, whether due to fraud
or error.
Auditors' Responsibility
Our responsibility is to express an opinion
on these consolidated financial statements based on our audits. We conducted our audits in accordance with Canadian generally accepted
auditing standards and the standards of the Public Company Accounting Oversight Board (United States). Those standards require
that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the consolidated
financial statements are free from material misstatement.
An audit involves performing procedures to obtain
audit evidence about the amounts and disclosures in the consolidated financial statements. The procedures selected depend on our
judgment, including the assessment of the risks of material misstatement of the consolidated financial statements, whether
due to fraud or error. In making those risk assessments, we consider internal control relevant to the entity's preparation and
fair presentation of the consolidated financial statements in order to design audit procedures that are appropriate in the circumstances.
An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates
made by management, as well as evaluating the overall presentation of the consolidated financial statements.
We believe that the audit evidence we have obtained
in our audits is sufficient and appropriate to provide a basis for our audit opinion.
Opinion
In our opinion, the consolidated financial statements present fairly,
in all material respects, the consolidated financial position of Pembina Pipeline Corporation as at December 31, 2014 and December
31, 2013, and its consolidated financial performance and its consolidated cash flows for the years then ended in accordance with
International Financial Reporting Standards as issued by the International Accounting Standards Board.
KPMG LLP is a Canadian limited
liability partnership and a member firm of the KPMG
network of independent member
firms affiliated with KPMG International Cooperative
("KPMG International"),
a Swiss entity. KPMG Canada provides services to KPMG LLP.
KPMG Confidential
Pembina
Pipeline Corporation
Other Matter
We also have audited, in accordance with the standards of the
Public Company Accounting Oversight Board (United States), Pembina Pipeline Corporation's internal control over financial reporting
as of December 31, 2014, based on the criteria established in Internal Control – Integrated Framework (2013) issued by the
Committee of Sponsoring Organizations of the Treadway Commission (COSO), and our report dated February 26, 2015 expressed an unmodified
(unqualified) opinion on the effectiveness of Pembina Pipeline Corporation's internal control over financial reporting.
Chartered Accountants
Calgary, Canada
February 26, 2015
KPMG LLP is a Canadian limited
liability partnership and a member firm of the KPMG
network of independent member
firms affiliated with KPMG International Cooperative
("KPMG International"),
a Swiss entity. KPMG Canada provides services to KPMG LLP.
KPMG Confidential
Pembina
Pipeline Corporation
|
kpmg LLP |
Telephone |
(403) 691-8000 |
|
205 - 5th Avenue SW |
Fax |
(403) 691-8008 |
|
Suite 3100, Bow Valley Square 2 |
www.kpmg.ca |
|
Calgary AB |
|
|
|
T2P 4B9 |
|
|
Report of
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Shareholders and Board of Directors of Pembina Pipeline Corporation
We have audited Pembina Pipeline Corporation
(the "Corporation") internal control over financial reporting as at December 31, 2014, based on the criteria established
in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission
(COSO). The Corporation's management is responsible for maintaining effective internal control over financial reporting and for
its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management's Report.
Our responsibility is to express an opinion on the Corporation's internal control over financial reporting based on our audit.
We conducted our audit in accordance with
the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all
material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk
that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on
the assessed risk. Our audit also included performing such other procedures as we considered necessary in the circumstances. We
believe that our audit provides a reasonable basis for our opinion.
An entity's internal control over financial
reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation
of financial statements for external purposes in accordance with generally accepted accounting principles. An entity's internal
control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that,
in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the entity; (2) provide
reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with
generally accepted accounting principles, and that receipts and expenditures of the entity are being made only in accordance with
authorizations of management and directors of the entity; and (3) provide reasonable assurance regarding prevention or timely
detection of unauthorized acquisition, use, or disposition of the entity's assets that could have a material effect on the financial
statements.
Because of its inherent limitations, internal
control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness
to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree
of compliance with the policies or procedures may deteriorate.
In our opinion, the Corporation maintained, in all material respects,
effective internal control over financial reporting as of December 31, 2014, based on the criteria established in Internal
Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).
KPMG LLP is a Canadian limited
liability partnership and a member firm of the KPMG
network of independent member
firms affiliated with KPMG International Cooperative
("KPMG International"),
a Swiss entity. KPMG Canada provides services to KPMG LLP.
KPMG Confidential
Pembina
Pipeline Corporation
We also have audited, in accordance with Canadian generally
accepted auditing standards and the standards of the Public Company Accounting Oversight Board (United States), the consolidated
statements of financial position of the Corporation as of December 31, 2014 and December 31, 2013, and the related consolidated
statements of earnings and comprehensive income, changes in equity and cash flows for the years then ended, and our report dated
February 26, 2015 expressed an unmodified (unqualified) opinion on those consolidated financial statements.
Chartered Accountants
Calgary, Canada
February 26, 2015
Pembina
Pipeline Corporation
CONSOLIDATED STATEMENTS OF FINANCIAL
POSITION
As at December 31
($ millions) |
Note |
2014 |
2013 |
Assets
|
|
|
|
Current assets |
|
|
|
Cash and cash equivalents |
|
53 |
51 |
Trade receivables and other |
7 |
447 |
434 |
Derivative financial instruments |
24 |
51 |
4 |
Inventory |
|
137 |
159 |
|
|
688 |
648 |
Non-current assets |
|
|
|
Property, plant and equipment |
8 |
7,560 |
5,750 |
Intangible assets and goodwill |
9 |
2,841 |
2,564 |
Investments in equity accounted investees |
10 |
153 |
165 |
Derivative financial instruments |
24 |
1 |
|
Deferred tax assets |
11 |
19 |
15 |
|
|
10,574 |
8,494 |
Total Assets |
|
11,262 |
9,142 |
|
|
|
|
Liabilities and Equity
|
|
|
|
Current liabilities |
|
|
|
Trade payables and accrued liabilities |
12 |
550 |
461 |
Tax payable |
|
58 |
38 |
Dividends payable |
|
49 |
44 |
Loans and borrowings |
13 |
4 |
262 |
Derivative financial instruments |
24 |
44 |
13 |
|
|
705 |
818 |
Non-current liabilities |
|
|
|
Loans and borrowings |
13 |
2,466 |
1,409 |
Convertible debentures |
14 |
391 |
604 |
Derivative financial instruments |
24 |
73 |
107 |
Employee benefits and share-based payments |
|
44 |
20 |
Deferred revenue |
17 |
44 |
5 |
Provisions |
15 |
410 |
309 |
Deferred tax liabilities |
11 |
793 |
699 |
|
|
4,221 |
3,153 |
Total Liabilities |
|
4,926 |
3,971 |
Equity |
|
|
|
Equity attributable to shareholders of the Company |
|
|
|
Common share capital |
16 |
6,876 |
5,972 |
Preferred share capital |
16 |
880 |
391 |
Deficit |
|
(1,400) |
(1,189) |
Accumulated other comprehensive income |
|
(20) |
(8) |
|
|
6,336 |
5,166 |
Non-controlling interest |
|
|
5 |
Total Equity |
|
6,336 |
5,171 |
Total Liabilities and Equity |
|
11,262 |
9,142 |
See accompanying notes to the consolidated
financial statements
Pembina
Pipeline Corporation
CONSOLIDATED STATEMENTS OF EARNINGS AND COMPREHENSIVE
INCOME
Year Ended December 31
($ millions, except per share amounts) |
Note |
2014 |
2013 |
Revenue |
20 |
6,069 |
5,006 |
Cost of sales |
|
5,217 |
4,219 |
Gain on commodity-related derivative financial instruments |
|
24 |
6 |
Gross profit |
20 |
876 |
793 |
|
|
|
|
General and administrative |
|
156 |
132 |
Other expense |
|
18 |
1 |
|
|
174 |
133 |
Results from operating activities |
|
702 |
660 |
Net finance costs |
19 |
130 |
166 |
Earnings before income tax and equity accounted investees |
|
572 |
494 |
|
|
|
|
Share of loss of investment in equity accounted investees, net of tax |
|
22 |
|
Current tax expense |
11 |
103 |
38 |
Deferred tax expense |
11 |
64 |
105 |
Income tax expense |
|
167 |
143 |
|
|
|
|
Earnings for the year attributable to shareholders |
|
383 |
351 |
Other comprehensive income (loss) |
|
|
|
Remeasurements of defined benefit liability, net of tax |
22 |
(14) |
18 |
Items that will not be reclassified into earnings, net of tax |
|
(14) |
18 |
Exchange differences on translation of foreign operations |
|
2 |
|
Other comprehensive income (loss), net of tax |
|
(12) |
18 |
Total comprehensive income attributable to shareholders |
|
371 |
369 |
|
|
|
|
Earnings per common share – basic (dollars) |
21 |
1.07 |
1.12 |
Earnings per common share –diluted (dollars) |
21 |
1.06 |
1.12 |
|
|
|
|
Weighted average number of common shares (millions) |
|
|
|
Basic |
21 |
326 |
307 |
Diluted |
21 |
328 |
308 |
See accompanying notes to the consolidated
financial statements
Pembina
Pipeline Corporation
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
|
|
Attributable to Shareholders of the Company |
|
|
($ millions) |
Note |
Common
Shares |
Preferred
Shares |
Deficit |
Accumulated
Other
Comprehensive
Income |
Total |
Non-
controlling
Interest |
Total
Equity |
December 31, 2012 |
|
5,324 |
|
(1,028) |
(26) |
4,270 |
5 |
4,275 |
Total comprehensive income |
|
|
|
|
|
|
|
|
Earnings |
|
|
|
351 |
|
351 |
|
351 |
Other comprehensive income |
|
|
|
|
|
|
|
|
Defined benefit plan actuarial gains, net of tax of $6 |
22 |
|
|
|
18 |
18 |
|
18 |
Total comprehensive income |
|
|
|
351 |
18 |
369 |
|
369 |
Transactions with shareholders of the Company |
|
|
|
|
|
|
|
|
Common shares issued, net of issue costs |
16 |
335 |
|
|
|
335 |
|
335 |
Preferred shares issued, net of issue costs |
16 |
|
391 |
|
|
391 |
|
391 |
Dividend reinvestment plan |
16 |
286 |
|
|
|
286 |
|
286 |
Share-based payment transactions, debenture conversions and other |
16 |
27 |
|
|
|
27 |
|
27 |
Dividends declared – common |
16 |
|
|
(507) |
|
(507) |
|
(507) |
Dividends declared – preferred |
16 |
|
|
(5) |
|
(5) |
|
(5) |
Total transactions with shareholders of the Company |
|
648 |
391 |
(512) |
|
527 |
|
527 |
December 31, 2013 |
|
5,972 |
391 |
(1,189) |
(8) |
5,166 |
5 |
5,171 |
|
|
|
|
|
|
|
|
|
Total comprehensive income |
|
|
|
|
|
|
|
|
Earnings |
|
|
|
383 |
|
383 |
|
383 |
Other comprehensive income |
|
|
|
|
|
|
|
|
Defined benefit plan actuarial losses, net of tax of ($5) |
22 |
|
|
|
(14) |
(14) |
|
(14) |
Exchange differences on translation of foreign operations |
|
|
|
|
2 |
2 |
|
2 |
Total comprehensive income |
|
|
|
383 |
(12) |
371 |
|
371 |
Transactions with shareholders of the Company |
|
|
|
|
|
|
|
|
Common shares issued, net of issue costs |
6, 16 |
265 |
|
|
|
265 |
|
265 |
Preferred shares issued, net of issue costs |
16 |
|
489 |
|
|
489 |
|
489 |
Dividend reinvestment plan |
16 |
321 |
|
|
|
321 |
|
321 |
Debenture conversions |
16 |
293 |
|
|
|
293 |
|
293 |
Share-based payment transactions and other |
16 |
25 |
|
|
|
25 |
|
25 |
Dividends declared – common |
16 |
|
|
(563) |
|
(563) |
|
(563) |
Dividends declared – preferred |
16 |
|
|
(31) |
|
(31) |
|
(31) |
Total transactions with shareholders of the Company |
|
904 |
489 |
(594) |
|
799 |
|
799 |
Disposal of subsidiary |
|
|
|
|
|
|
(5) |
(5) |
December 31, 2014 |
|
6,876 |
880 |
(1,400) |
(20) |
6,336 |
|
6,336 |
See accompanying notes to the consolidated
financial statements
Pembina
Pipeline Corporation
CONSOLIDATED STATEMENTS OF CASH FLOWS
Year Ended December 31 ($ millions) |
Note |
2014 |
2013 |
Cash provided by (used in) |
|
|
|
Operating activities |
|
|
|
Earnings |
|
383 |
351 |
Adjustments for |
|
|
|
Depreciation and amortization |
|
226 |
171 |
Net finance costs |
19 |
130 |
166 |
Share of loss of investment in equity accounted investees, net of tax |
|
22 |
|
Income tax expense |
11 |
167 |
143 |
Share-based compensation expense |
23 |
39 |
34 |
Unrealized gain on commodity-related derivative financial instruments |
20 |
(14) |
(7) |
Net impairment – non-recoverable costs |
|
6 |
|
Inventory write-down |
20 |
38 |
|
Change in non-cash operating working capital |
|
(33) |
(96) |
Payments from equity accounted investees and other |
|
23 |
20 |
Share-based compensation payment |
|
(30) |
(17) |
Net interest paid |
19 |
(76) |
(80) |
Tax paid |
11 |
(81) |
|
Cash flow from operating activities |
|
800 |
685 |
|
|
|
|
Financing activities |
|
|
|
Bank borrowings and issuance of debt |
|
1,113 |
370 |
Repayment of loans and borrowings |
|
(304) |
(649) |
Issuance of common shares |
|
|
345 |
Issuance of preferred shares |
|
500 |
400 |
Issue costs and financing fees |
|
(21) |
(29) |
Exercise of stock options |
|
20 |
17 |
Dividends paid (net of shares issued under the dividend reinvestment plan) |
|
(269) |
(221) |
Cash flow from financing activities |
|
1,039 |
233 |
Investing activities |
|
|
|
Capital expenditures |
|
(1,412) |
(880) |
Changes in non-cash investing working capital and other |
|
84 |
34 |
Interest paid during construction |
19 |
(44) |
(35) |
Contributions to equity accounted investees |
|
(8) |
(13) |
Acquisition |
6 |
(457) |
|
Cash flow used in investing activities |
|
(1,837) |
(894) |
Change in cash |
|
2 |
24 |
Cash, beginning of year |
|
51 |
27 |
Cash and cash equivalents, end of year |
|
53 |
51 |
See accompanying notes to the consolidated
financial statements
Pembina
Pipeline Corporation
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
|
|
Page |
|
|
|
1. |
REPORTING ENTITY |
49 |
2. |
BASIS OF PREPARATION |
49 |
3. |
CHANGES IN ACCOUNTING POLICIES |
51 |
4. |
SIGNIFICANT ACCOUNTING POLICIES |
51 |
5. |
DETERMINATION OF FAIR VALUES |
63 |
6. |
ACQUISITION |
65 |
7. |
TRADE RECEIVABLES AND OTHER |
66 |
8. |
PROPERTY, PLANT AND EQUIPMENT |
66 |
9. |
INTANGIBLE ASSETS AND GOODWILL |
67 |
10. |
INVESTMENTS IN EQUITY ACCOUNTED INVESTEES |
68 |
11. |
INCOME TAXES |
69 |
12. |
TRADE PAYABLES AND ACCRUED LIABILITIES |
71 |
13. |
LOANS AND BORROWINGS |
71 |
14. |
CONVERTIBLE DEBENTURES |
73 |
15. |
PROVISIONS |
74 |
16. |
SHARE CAPITAL |
74 |
17. |
DEFERRED REVENUE |
77 |
18. |
PERSONNEL EXPENSES |
77 |
19. |
NET FINANCE COSTS |
78 |
20. |
OPERATING SEGMENTS |
78 |
21. |
EARNINGS PER COMMON SHARE |
80 |
22. |
PENSION PLAN |
81 |
23. |
SHARE-BASED PAYMENTS |
84 |
24. |
FINANCIAL INSTRUMENTS AND FINANCIAL RISK MANAGEMENT |
86 |
25. |
OPERATING LEASES |
91 |
26. |
CAPITAL MANAGEMENT |
91 |
27. |
GROUP ENTITIES |
92 |
28. |
RELATED PARTIES |
92 |
29. |
SUBSEQUENT EVENTS |
93 |
Pembina
Pipeline Corporation
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Pembina Pipeline Corporation ("Pembina" or the "Company")
is an energy transportation and service provider domiciled in Canada. The consolidated financial statements ("Financial Statements")
include the accounts of the Company, its subsidiary companies, partnerships and any interests in associates and joint arrangements
as at and for the year ended December 31, 2014. These Financial Statements present fairly the financial position, financial performance
and cash flows of the Company.
Pembina owns or has interests in conventional crude oil, condensate
and natural gas liquids ("NGL") pipelines, oil sands and heavy oil pipelines, gas gathering and processing facilities,
an NGL infrastructure and logistics business and midstream services that span across its operations. The Company's assets are located
in Canada and in the United States.
| a. | Basis of measurement and statement of compliance |
The Financial Statements have been prepared on a historical
cost basis with some exceptions, as detailed the accounting policies set out below in accordance with International Financial Reporting
Standards ("IFRS"), as issued by the International Accounting Standards Board ("IASB"). These accounting policies
have been applied consistently for all periods presented in these financial statements.
Certain insignificant comparative amounts have been reclassified
to conform to the presentation adopted in the current year.
The Financial Statements were authorized for issue by the Board
of Directors on February 26, 2015.
| b. | Functional and presentation currency |
The Financial Statements are presented in Canadian dollars.
All financial information presented in Canadian dollars has been disclosed in millions, except where noted. The
assets and liabilities of subsidiaries whose functional currencies are other than Canadian dollars are translated into Canadian
dollars at the foreign exchange rate at the balance sheet date, while revenues and expenses of such subsidiaries are translated
using average monthly foreign exchange rates, which approximate the foreign exchange rates on the dates of the transactions. Foreign
exchange differences arising on translation are included in Other Comprehensive Income.
| c. | Use of estimates and judgments |
The preparation of the Financial Statements in conformity with
IFRS requires management to make judgments, estimates and assumptions that are based on the circumstances and estimates at the
date of the financial statements and affect the application of accounting policies and the reported amounts of assets, liabilities,
income and expenses. Actual results may differ from these estimates.
Judgments, estimates and underlying assumptions are reviewed
on an ongoing basis. Revisions to accounting estimates are recognized in the period in which the estimates are revised and in any
future periods affected.
The following judgment and estimation uncertainties are those
management considers material to the Company's financial statements:
Pembina
Pipeline Corporation
Judgments
Business combinations are accounted for using the acquisition
method of accounting. The determination of fair value often requires management to make judgments about future possible events.
The assumptions with respect to determining the fair value of property, plant and equipment and intangible assets acquired generally
require the most judgment.
| (ii) | Depreciation and amortization |
Depreciation and amortization of property, plant and equipment
and intangible assets are based on management's judgment of the most appropriate method to reflect the pattern of an asset's future
economic benefit expected to be consumed by the Company. Among other factors, these judgments are based on industry standards and
historical experience.
The determination of the Company’s and its subsidiaries’
functional currency requires assessing several factors, including the currency that predominantly influences sales price, operational
and other costs, and to a lesser extent financing of the operations. Management has determined the functional currency of certain
Conventional Pipelines operations to be the U.S. dollar. The functional currency of all other entities was determined to be the
Canadian dollar.
Assessment of impairment is based on management's judgment of
whether there are sufficient internal and external factors that would indicate that an asset, or cash generating unit ("CGU"),
or group of CGU's are impaired. The determination of a CGU is also based on management's judgment and is an assessment of the smallest
group of assets that generate cash inflows independently of other assets. The asset composition of a CGU can directly impact the
recoverability of the assets included therein. In assessing the recoverability, each CGU's carrying value is compared to its recoverable
amount, defined as the greater of fair value less costs to sell and value in use.
Estimates
Estimates of future cash flows, forecast prices, interest rates
and discount rates are made in determining the fair value of assets acquired and liabilities assumed. Changes in any of the assumptions
or estimates used in determining the fair value of acquired assets and liabilities could impact the amounts assigned to assets,
liabilities, intangible assets and goodwill in the purchase price equation. Future earnings can be affected as a result of changes
in future depreciation and amortization, asset or goodwill impairment.
| (ii) | Provisions and contingencies |
Provisions recognized are based on management's judgment about
assessing contingent liabilities and timing, scope and amount of assets and liabilities. Management uses judgment in determining
the likelihood of realization of contingent assets and liabilities to determine the outcome of contingencies.
Based on the long-term nature of the decommissioning provision,
the most significant uncertainties in estimating the provision are the discount rates used, the costs that will be incurred and
the timing of when these costs will occur. In addition, in determining the provision it is assumed that the Company will utilize
technology and materials that are currently available.
Pembina
Pipeline Corporation
The calculation of the deferred tax asset or liability is based
on assumptions about the timing of many taxable events and the enacted or substantively enacted rates anticipated to be applicable
to income in the years in which temporary differences are expected to be realized or reversed.
| (iv) | Depreciation and amortization |
Estimated useful lives of property, plant and equipment and
intangible assets are based on management's assumptions and estimates of the physical useful lives of the assets, the economic
lives, which may be associated with the reserve lives and commodity type of the production area, in addition to the estimated residual
value.
Impairment tests include management's best estimates of future
cash flows and discount rates.
| 3. | CHANGES IN ACCOUNTING POLICIES |
Except for the changes below, accounting policies as disclosed
in Note 4 have been applied to all periods consistently.
The following new standards, interpretations, amendments and
improvements to existing standards issued by the IASB or International Financial Reporting Standards Interpretations Committee
("IFRIC") were adopted as of January 1, 2014 without any material impact to Pembina's Financial Statements: IAS 32 Financial
Instruments and IFRIC 21 Levies.
| 4. | SIGNIFICANT ACCOUNTING POLICIES |
The accounting policies as set out below have been applied consistently
to all periods presented in these Financial Statements.
The Company measures goodwill as the fair value of
the consideration transferred including the recognized amount of any non-controlling interest in the acquiree, less the net recognized
amount (generally fair value) of the identifiable assets acquired and liabilities assumed, all measured as of the acquisition date.
When the excess is negative, a bargain purchase gain is recognized immediately in earnings.
The Company elects on a transaction-by-transaction
basis whether to measure non-controlling interest at its fair value, or at its proportionate share of the recognized amount of
the identifiable net assets, at the acquisition date.
Non-controlling interests represent equity interests
in subsidiaries owned by outside parties. The share of net assets of subsidiaries attributable to non-controlling interests is
presented as a separate component of equity. Their share of net income and other comprehensive income is also recognized in this
separate component of equity. Changes in the Company's ownership interest in subsidiaries that do not result in a loss of control
are accounted for as equity transactions. Adjustments to non-controlling interests are based on a proportionate amount of the net
assets of the subsidiary. No adjustments are made to goodwill and no gain or loss is recognized in earnings.
Pembina
Pipeline Corporation
Transaction costs, other than those associated with
the issue of debt or equity securities, that the Company incurs in connection with a business combination are expensed as incurred.
Subsidiaries are entities, including unincorporated
entities such as partnerships, controlled by the Company. The financial statements of subsidiaries are included in the Financial
Statements from the date that control commences until the date that control ceases. The accounting policies of subsidiaries are
aligned with the policies adopted by the Company.
| iii) | Investments in associates |
Associates are those entities in which the Company
has significant influence and thereby has the power to participate in the financial and operational decisions, but does not control
or jointly control the investee. Significant influence is presumed to exist when the Company holds between 20 and 50 percent of
the voting power of another entity.
The Financial Statements include the Company's share
of the earnings and other comprehensive income, after adjustments to align the accounting policies with those of the Company, from
the date that significant influence commences until the date that significant influence ceases. The Company's investments in associates
are accounted for using the equity method and are recognized initially at cost, including transaction costs.
When the Company's share of losses exceeds its interest
in an equity accounted investee, the carrying amount of that interest, including any long-term investments, is reduced to nil,
and the recognition of further losses is discontinued except to the extent that the Company has an obligation or has made payments
on behalf of the investee.
Joint arrangements represent activities where the
Company has joint control established by a contractual agreement. Joint control requires unanimous consent for the relevant financial
and operational decisions. A joint arrangement is either a joint operation, whereby the parties have rights to the assets and obligations
for the liabilities, or a joint venture, whereby the parties have rights to the net assets.
For a joint operation the consolidated financial
statements include the Company's proportionate share of the assets, liabilities, revenues, expenses and cash flows of the arrangement
with items of a similar nature on a line-by-line basis, from the date that joint control commences until the date that joint control
ceases.
Joint ventures are accounted for using the equity
method of accounting and recognized at cost and adjusted thereafter for the post acquisition change in the Company's share of the
joint venture's net assets. The Company's consolidated financial statements include its share of the joint venture's profit or
loss and other comprehensive income included in investment in joint ventures, until the date that joint control ceases.
Determining the type of joint arrangement as either
joint operation or joint venture is based on management's assumptions of whether it has joint control over another entity. The
considerations include, but are not limited to, determining if the arrangement is structured through a separate vehicle and whether
the legal form and contractual arrangements give the entity direct rights to the assets and obligations for the liabilities within
the normal course of business. Other facts and circumstances are also assessed by management, including the entity's rights to
the economic benefits of assets and its involvement and responsibility for settling liabilities associated with the arrangement.
Pembina
Pipeline Corporation
| v) | Transactions eliminated on consolidation |
Intra-group balances and transactions, and any unrealized
revenue and expenses arising from intra-group transactions, are eliminated in preparing the consolidated financial statements.
Unrealized gains arising from transactions with equity-accounted investees are eliminated against the investment to the extent
of the Company's interest in the investee. Unrealized losses are eliminated in the same way as unrealized gains, but only to the
extent that there is no evidence of impairment.
Transactions in foreign currencies are translated
to the Company's functional currency at exchange rates at the dates of the transactions. Monetary assets and liabilities denominated
in foreign currencies at the reporting date are retranslated to the Company's functional currency at the exchange rate at that
date. The foreign currency gain or loss on monetary items is the difference between amortized cost in the functional currency at
the beginning of the period, adjusted for effective interest and payments during the period, and the amortized cost in foreign
currency translated at the exchange rate at the end of the reporting period.
Non-monetary assets and liabilities denominated in
foreign currencies that are measured at fair value are retranslated to the functional currency at the exchange rate at the date
that the fair value was determined. Non-monetary items that are measured in terms of historical cost in a foreign currency are
translated using the exchange rate at the date of the transaction.
Foreign currency differences arising on retranslation
are recognized in earnings.
Inventories are measured at the lower of cost and net realizable
value and consist primarily of crude oil and NGL. The cost of inventories is determined using the weighted average costing method
and includes direct purchase costs and when applicable, costs of production, extraction, fractionation costs, and transportation
costs. Net realizable value is the estimated selling price in the ordinary course of business less the estimated selling costs.
All changes in the value of the inventories are reflected in inventories and cost of sales.
Financial assets and liabilities are offset and the net amount
presented in the statement of financial position when, and only when, the Company has a legal right to offset the amounts and intends
either to settle on a net basis or to realize the asset and settle the liability simultaneously.
| i) | Non-derivative financial assets |
The Company initially recognizes loans and receivables
and deposits on the date that they are originated. All other financial assets (including assets designated at fair value through
earnings) are recognized initially on the trade date at which the Company becomes a party to the contractual provisions of the
instrument.
The Company derecognizes a financial asset when the
contractual rights to the cash flows from the asset expire, or it transfers the rights to receive the contractual cash flows on
the financial asset in a transaction in which substantially all the risks and rewards of ownership of the financial asset are transferred.
Any interest in transferred financial assets that is created or retained by the Company is recognized as a separate asset or liability.
Pembina
Pipeline Corporation
The Company classifies non-derivative financial assets
into the following categories:
Cash and cash equivalents
Cash and cash equivalents comprise cash balances,
call deposits and short-term investments with original maturities of ninety days or less that are subject to an insignificant risk
of changes in their fair value, and are used by the Company in the management of its short-term commitments.
Trade and other receivables
Trade and other receivables are financial assets
with fixed or determinable payments that are not quoted in an active market.
Such assets are recognized initially at fair value
plus any directly attributable transaction costs. Subsequent to initial recognition, loans and receivables are measured at amortized
cost using the effective interest method less any impairment losses.
| ii) | Non-derivative financial liabilities |
The Company initially recognizes debt securities
issued and subordinated liabilities on the date that they are originated. All other financial liabilities (including liabilities
designated at fair value through earnings) are recognized initially on the trade date at which the Company becomes a party to the
contractual provisions of the instrument.
The Company derecognizes a financial liability when
its contractual obligations are discharged, cancelled or expire.
The Company's non-derivative financial liabilities
are comprised of the following: bank overdrafts, trade payables and accrued liabilities, tax payable, dividends payable, loans
and borrowings including finance lease obligations and the liability component of convertible debentures.
Such financial liabilities are recognized initially
at fair value plus any directly attributable transaction costs. Subsequent to initial recognition these financial liabilities are
measured at amortized cost using the effective interest method.
Bank overdrafts that are repayable on demand and
form an integral part of the Company's cash management are included as a component of cash and cash equivalents for the purpose
of the statement of cash flows.
Common shares are classified as equity. Incremental
costs directly attributable to the issue of common shares and share options are recognized as a deduction from equity, net of any
tax effects.
| iv) | Preferred share capital |
Preferred shares are classified as equity because
they bear discretionary dividends and do not contain any obligations to deliver cash or other financial assets. Discretionary dividends
are recognized as equity distributions on approval by the Company's Board of Directors. Incremental costs directly attributable
to the issue of preferred shares are recognized as a deduction from equity, net of any tax effects.
| v) | Compound financial instruments |
The Company's convertible debentures are compound
financial instruments consisting of a financial liability and an embedded conversion feature. In accordance with IAS 39, the embedded
derivatives are required to be separated from the host contracts and accounted for as stand-alone instruments.
Pembina
Pipeline Corporation
Debentures containing a cash conversion option allow
Pembina to pay cash to the converting holder of the debentures, at the option of the Company. As such, the conversion feature is
presented as a financial derivative liability within long-term derivative financial instruments. Debentures without a cash conversion
option are settled in shares on conversion, and therefore the conversion feature is presented within equity, in accordance with
its contractual substance.
On initial recognition and at each reporting date,
the embedded conversion feature is measured using a method whereby the fair value is measured using an option pricing model. Subsequent
to initial recognition, any unrealized gains or losses arising from fair value changes are recognized through earnings in the statement
of earnings and comprehensive income at each reporting date. If the conversion feature is included in equity, it is not remeasured
subsequent to initial recognition. On initial recognition, the debt component, net of issue costs, is recorded as a financial liability
and accounted for at amortized cost. Subsequent to initial recognition, the debt component is accreted to the face value of the
debentures using the effective interest rate method. Upon conversion, the corresponding portions of the debt and equity are removed
from those captions and transferred to share capital.
| vi) | Derivative financial instruments |
The Company holds derivative financial instruments
to manage its interest rate, commodity, power costs and foreign exchange risk exposures as well as cash conversion features on
convertible debentures and a redemption liability. Embedded derivatives are separated from the host contract and accounted for
separately if the economic characteristics and risks of the host contract and the embedded derivative meet the definition of a
derivative, and the combined instrument is not measured at fair value through earnings. Derivatives are recognized initially at
fair value with attributable transaction costs recognized in earnings as incurred. Subsequent to initial recognition, derivatives
are measured at fair value and changes in non-commodity-related derivatives are recognized immediately in earnings in net finance
costs and changes in commodity-related derivatives are recognized immediately in earnings in operating activities.
| d. | Property, plant and equipment |
| i) | Recognition and measurement |
Items of property, plant and equipment are measured
at cost less accumulated depreciation and accumulated impairment losses.
Cost includes expenditures that are directly attributable
to the acquisition of the asset. The cost of self-constructed assets includes the cost of materials and direct labour, any other
costs directly attributable to bringing the assets to a working condition for their intended use, estimated decommissioning provisions
and borrowing costs on qualifying assets.
Cost also may include any gain or loss realized on
foreign currency transactions directly attributable to the purchase or construction of property, plant and equipment. Purchased
software that is integral to the functionality of the related equipment is capitalized as part of that equipment.
When parts of an item of property, plant and equipment
have different useful lives, they are accounted for as separate components of property, plant and equipment.
The gain or loss on disposal of an item of property,
plant and equipment is determined by comparing the proceeds from disposal with the carrying amount of property, plant and equipment,
and are recognized within other expense (income) in earnings.
Pembina
Pipeline Corporation
The cost of replacing a part of an item of property,
plant and equipment is recognized in the carrying amount of the item if it is probable that the future economic benefits embodied
within the part will flow to the Company, and its cost can be measured reliably. The carrying amount of the replaced part is derecognized.
The cost of maintenance and repair expenses of the property, plant and equipment are recognized in earnings as incurred.
Depreciation is based on the cost of an asset less
its residual value. Significant components of individual assets, other than land, are assessed and if a component has a useful
life that is different from the remainder of the asset, that component is depreciated separately.
Depreciation is recognized in earnings on a straight
line or declining balance basis, which most closely reflects the expected pattern of consumption of the future economic benefits
embodied in the asset. Pipeline assets and facilities are generally depreciated using the straight line method over 6 to 75 years
(an average of 33 years) or declining balance method at rates ranging from 7 percent to 37 percent per annum (an average rate of
6 percent per annum). Facilities and equipment are depreciated using straight line method over 4 to 40 years (at an average rate
of 34 years) or declining balance method at rates ranging from 10 to 20 percent (at an average rate of 6 percent per annum). Other
assets are depreciated using the straight line method over 2 to 60 years (an average of 37 years) or declining balance method at
rates ranging from 7 percent to 21 percent (at an average rate of 6 percent per annum). These rates are established to depreciate
remaining net book value over the shorter of their useful lives, economic lives or contractual duration of the related assets.
Leased assets are depreciated over the shorter of
the lease term and their useful lives unless it is reasonably certain that the Company will obtain ownership by the end of the
lease term.
Depreciation methods, useful lives, economic lives
and residual values are reviewed annually and adjusted if appropriate.
Goodwill that arises upon acquisitions is included
in intangible assets. See Note 4(a)(i) for the policy on measurement of goodwill at initial recognition.
Subsequent measurement
Goodwill is measured at cost less accumulated impairment
losses.
In respect of equity accounted investees, the carrying
amount of goodwill is included in the carrying amount of the investment, and an impairment loss on such an investment is allocated
to the investment and not to any asset, including goodwill, that forms the carrying amount of the equity accounted investee.
| ii) | Other intangible assets |
Other intangible assets acquired individually by
the Company and have finite useful lives are recognized and measured at cost less accumulated amortization and accumulated impairment
losses.
Pembina
Pipeline Corporation
| iii) | Subsequent expenditures |
Subsequent expenditures are capitalized only when
it increases the future economic benefits embodied in the specific asset to which it relates. All other expenditures are recognized
in earnings as incurred.
Amortization is based on the cost of an asset less
its residual value.
Amortization is recognized in earnings on a straight-line
basis over the estimated useful lives of intangible assets, other than goodwill, from the date that they are available for use.
The estimated useful lives of other intangible assets with finite useful lives range from 2 to 33 years (at an average of 15 years)
or declining balance method at 9 percent per annum.
Amortization methods, useful lives and residual values
are reviewed annually and adjusted if appropriate.
Leases which the Company assumes substantially all the risks
and rewards of ownership are classified as finance leases. The leased asset is initially recognized at an amount equal to the lower
of its fair value and the present value of the minimum lease payments. Subsequent to initial recognition, the asset is accounted
for in accordance with the accounting policy applicable to that asset.
Other leases are operating leases and are not recognized in
the Company's statement of financial position.
Payments made under operating leases are recognized in earnings
on a straight-line basis over the term of the lease. Lease incentives received are recognized as an integral part of the total
lease expense, over the term of the lease.
Minimum lease payments made under finance leases are apportioned
between the finance cost and the reduction of the outstanding liability. The finance cost is allocated to each period during the
lease term so as to produce a constant periodic rate of interest on the remaining balance of the liability. Contingent lease payments
are accounted for by revising the minimum lease payments over the remaining life.
| i) | Determining whether an arrangement contains a lease |
At inception of an arrangement, the Company determines
whether such an arrangement is or contains a lease. A specific asset is the subject of a lease if fulfilment of the arrangement
is dependent on the use of that specified asset. An arrangement conveys the right to use the asset if the arrangement conveys to
a lessee the right to control the use of the underlying asset.
At inception or upon reassessment of the arrangement,
the Company separates payments and other consideration required by such an arrangement into those for the lease and those for other
elements on the basis of their relative fair values. If the Company concludes, for a finance lease, that it is impracticable to
separate the payments reliably, an asset and liability are recognized at an amount equal to the fair value of the underlying asset.
Subsequently, the liability is reduced as payments are made and an imputed finance cost on the liability is recognized using the
Company's incremental borrowing rate.
Pembina
Pipeline Corporation
| i) | Non-derivative financial assets |
A financial asset not carried at fair value through
earnings is assessed at each reporting date to determine whether it is impaired. A financial asset is impaired if there is objective
evidence of impairment as a result of one or more events that occurred after the initial recognition of the asset and that loss
event has a negative impact on the estimated future cash flows of that asset that can be estimated reliably.
Objective evidence that financial assets are impaired
can include default or delinquency by a debtor, restructuring of an amount due to the Company on terms that the Company would not
consider otherwise, indications that a debtor or issuer will enter bankruptcy, adverse changes in the payment status of borrowers
or issuers in the Company, economic conditions that correlate with defaults or the disappearance of an active market for a security
or a significant or prolonged decline in the fair value below cost.
Trade receivables ("Receivables")
The Company considers evidence of impairment for
Receivables at both a specific asset and collective level. All individually significant Receivables are assessed for specific impairment.
All individually significant Receivables found not to be specifically impaired are then collectively assessed for any impairment
that has been incurred but not yet identified. Receivables that are not individually significant are collectively assessed for
impairment by grouping together Receivables with similar risk characteristics.
In assessing collective impairment, the Company uses
historical trends of the probability of default, timing of recoveries and the amount of loss incurred, adjusted for management's
judgment as to whether current economic and credit conditions are such that the actual losses are likely to be greater or less
than suggested by historical trends.
An impairment loss in respect of a financial asset
measured at amortized cost is calculated as the difference between its carrying amount and the present value of the estimated future
cash flows discounted at the asset's original effective interest rate. Losses are recognized in earnings and reflected in an allowance
account against Receivables. Interest on the impaired asset continues to be recognized through the unwinding of the discount. When
a subsequent event causes the amount of impairment loss to decrease, the decrease in impairment loss is reversed through earnings.
The carrying amounts of the Company's non-financial
assets, other than inventory, assets arising from employee benefits and deferred tax assets, are reviewed at each reporting date
to determine whether there is any indication of impairment. If any such indication exists, the asset's recoverable amount is estimated.
For goodwill and intangible assets that have indefinite
useful lives or that are not yet available for use, the recoverable amount is estimated at December 31st of each year.
An impairment loss is recognized if the carrying amount of an asset or its related CGU exceeds its estimated recoverable amount.
The recoverable amount of an asset or CGU is the
greater of its value in use and its fair value less costs to sell. In assessing value in use, the estimated future cash flows are
discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money
and the risks specific to the asset or CGU. For the purpose of impairment testing, assets that cannot be tested individually are
grouped together into the smallest group of assets that generates cash inflows from continuing use that are largely independent
of the cash inflows of other assets or CGUs. For the purpose of goodwill impairment testing, CGUs are aggregated so that the level
at which impairment testing is performed reflects the lowest level at which goodwill is monitored for internal purposes. Goodwill
acquired in a business combination is allocated to CGUs or groups of CGUs that are expected to benefit from the synergies of the
combination.
Pembina
Pipeline Corporation
The Company's corporate assets do not generate separate
cash inflows and are utilized by more than one CGU. Corporate assets are allocated to CGUs on a reasonable and consistent basis
and tested for impairment as part of the testing of the CGU to which the corporate asset is allocated. If there is an indication
that a corporate asset may be impaired, then the recoverable amount is determined for the CGU to which the corporate asset belongs.
Impairment losses are recognized in earnings. An
impairment loss is recognized if the carrying amount of an asset or its CGU exceeds its estimated recoverable amount. Impairment
losses recognized in respect of CGUs are allocated first to reduce the carrying amount of any goodwill allocated to the CGU (group
of CGUs), and then to reduce the carrying amounts of the other assets in the CGU (group of CGUs) on a pro rata basis.
An impairment loss in respect of goodwill is not
reversed. In respect of other assets, impairment losses recognized in prior periods are assessed at each reporting date for any
indications that the loss has decreased or no longer exists. An impairment loss is reversed if there has been a change in the estimates
used to determine the recoverable amount. An impairment loss is reversed only to the extent that the asset's carrying amount does
not exceed the carrying amount that would have been determined, net of depreciation or amortization, if no impairment loss had
been recognized.
Goodwill that forms part of the carrying amount of
an equity-accounted investee is not recognized separately, and therefore is not tested for impairment separately. Instead, the
entire amount of the investment is tested for impairment as a single asset when there is objective evidence that the equity-accounted
investee may be impaired.
| i) | Defined contribution plans |
A defined contribution plan is a post-employment
benefit plan under which an entity pays fixed contributions into a separate entity and will have no legal or constructive obligation
to pay further amounts. Obligations for contributions to defined contribution pension plans are recognized as an employee benefit
expense in earnings in the periods during which services are rendered by employees. Prepaid contributions are recognized as an
asset to the extent that a cash refund or a reduction in future payments is available. Contributions to a defined contribution
plan due more than 12 months after the end of the period in which the employees render the service are discounted to their present
value.
| ii) | Defined benefit pension plans |
A defined benefit pension plan is a post-employment
benefit plan other than a defined contribution plan. The Company's net obligation in respect of Defined Benefit Pension Plans is
calculated separately for each plan by estimating the amount of future benefit that employees have earned in return for their service
in the current and prior periods, discounted to determine its present value, less the fair value of any plan assets. The discount
rate used to determine the present value is established by referencing market yields on high-quality corporate bonds on the measurement
date with cash flows that match the timing and amount of expected benefits.
Pembina
Pipeline Corporation
The calculation is performed, at a minimum, every
three years by a qualified actuary using the actuarial cost method. When the calculation results in a benefit to the Company, the
recognized asset is limited to the present value of economic benefits available in the form of future expenses payable from the
plan, any future refunds from the plan or reductions in future contributions to the plan. In order to calculate the present value
of economic benefits, consideration is given to any minimum funding requirements that apply to any plan in the Company. An economic
benefit is available to the Company if it is realizable during the life of the plan or on settlement of the plan liabilities.
When the benefits of a plan are improved, the portion
of the increased benefit relating to past service by employees is recognized in earnings immediately.
The Company recognizes all actuarial gains and losses
arising from defined benefit plans in other comprehensive income and expenses related to defined benefit plans in personnel expenses
in earnings.
The Company recognizes gains or losses on the curtailment
or settlement of a defined benefit plan when the curtailment or settlement occurs. The gain or loss on curtailment comprises any
resulting change in the fair value of plan assets, change in the present value of defined benefit obligation and any related actuarial
gains or losses and past service cost that had not previously been recognized.
| iii) | Short-term employee benefits |
Short-term employee benefit obligations are measured
on an undiscounted basis and are expensed as the related service is provided.
A liability is recognized for the amount expected
to be paid under short-term cash bonus if the Company has a present legal or constructive obligation to pay this amount as a result
of past service provided by the employee, and the obligation can be estimated reliably.
| iv) | Share-based payment transactions |
For equity settled share-based payment plans, the
fair value of the share-based payment at grant date is recognized as an expense, with a corresponding increase in equity, over
the period that the employees unconditionally become entitled to the awards. The amount recognized as an expense is adjusted to
reflect the number of awards for which the related service and non-market vesting conditions are expected to be met, such that
the amount ultimately recognized as an expense is based on the number of awards that meet the related service conditions at the
vesting date.
For cash settled share-based payment plans, the fair
value of the amount payable to employees is recognized as an expense with a corresponding increase in liabilities, over the period
that the employees unconditionally become entitled to payment. The liability is remeasured at each reporting date and at settlement
date. Any changes in the fair value of the liability are recognized as an expense in earnings.
A provision is recognized if, as a result of a past event, the
Company has a present legal or constructive obligation that can be estimated reliably, and it is probable that an outflow of economic
benefits will be required to settle the obligation. Provisions are determined by discounting the expected future cash flows at
a pre-tax rate that reflects current market assessments of the time value of money and the risks specific to the liability. Provisions
are remeasured at each reporting date based on the best estimate of the settlement amount. The unwinding of the discount rate is
recognized as a finance cost.
Pembina
Pipeline Corporation
Decommissioning obligation
The Company's activities give rise to dismantling, decommissioning
and site disturbance remediation activities. A provision is made for the estimated cost of site restoration and capitalized in
the relevant asset category.
Decommissioning obligations are measured at the present value,
based on a risk free rate, of management's best estimate of expenditure required to settle the obligation at the balance sheet
date. Subsequent to the initial measurement, the obligation is adjusted at the end of each period to reflect the passage of time,
changes in the risk free rate and changes in the estimated future cash flows underlying the obligation. The increase in the provision
due to the passage of time is recognized as finance costs whereas increases or decreases due to changes in the estimated future
cash flows or risk free rate are added to or deducted from the cost of the related asset.
Revenue in the course of ordinary activities is measured at
the fair value of the consideration received or receivable. Revenue is recognized when persuasive evidence exists that the significant
risks and rewards of ownership have been transferred to the customer or the service has been provided, recovery of the consideration
is probable, the associated costs can be estimated reliably, there is no continuing management involvement with the goods, and
the amount of revenue can be measured reliably.
The timing of the transfer of significant risks and rewards
varies depending on the individual terms of the sales or service agreement. For product sales, usually transfer of significant
risks and rewards occurs when the product is delivered to a customer. For pipeline transportation revenues and storage revenue,
transfer of significant risks and rewards usually occurs when the service is provided as per the contract with the customer. For
rate or contractually regulated pipeline operations, revenue is recognized in a manner that is consistent with the underlying rate
design as mandated by agreement or regulatory authority.
Certain commodity buy/sell arrangements where the risks and
rewards of ownership have not transferred are recognized on a net basis in earnings.
| l. | Finance income and finance costs |
Finance income comprises interest income on funds deposited
and invested, gains on non-commodity-related derivatives measured at fair value through earnings and foreign exchange gains. Interest
income is recognized as it accrues in earnings, using the effective interest method.
Finance costs comprise interest expense on loans and borrowings
and convertible debentures, unwinding of discount rate on provisions, losses on disposal of available for sale financial assets,
losses on non-commodity-related derivatives, impairment losses recognized on financial assets (other than trade and other receivables)
and foreign exchange losses.
Borrowing costs that are not directly attributable to the acquisition
or construction of a qualifying asset are recognized in earnings using the effective interest method.
Income tax expense comprises current and deferred tax. Current
and deferred taxes are recognized in earnings except to the extent that it relates to a business combination, or items are recognized
directly in equity or in other comprehensive income.
Pembina
Pipeline Corporation
Current tax is the expected tax payable or receivable on the taxable
income or loss for the period, using tax rates enacted or substantively enacted at the reporting date, and any adjustment to tax
payable in respect of previous years.
Deferred tax is recognized in respect of temporary differences
between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes.
Deferred tax is not recognized for:
| · | temporary differences on the initial recognition of assets or liabilities
in a transaction that is not a business combination and that affects neither accounting nor taxable earnings; |
| · | temporary differences relating to investments in subsidiaries and joint
arrangements to the extent that it is probable that they will not reverse in the foreseeable future; and |
| · | taxable temporary differences arising on the initial recognition of
goodwill. |
The measurement of deferred tax reflects the tax consequences
that would follow the manner in which the Company expects, at the end of the reporting period, to recover or settle the carrying
amount of its assets and liabilities.
Deferred tax is measured at the tax rates that are expected
to be applied to temporary differences when they reverse, based on the laws that have been enacted or substantively enacted by
the reporting date.
Deferred tax assets and liabilities are offset if there is a
legally enforceable right to offset current tax liabilities and assets, and they relate to income taxes levied by the same tax
authority on the same taxable entity, or on different tax entities, but they intend to settle current tax liabilities and assets
on a net basis or their tax assets and liabilities will be realized simultaneously.
A deferred tax asset is recognized for unused tax losses, tax
credits and deductible temporary differences, to the extent that it is probable that future taxable profits will be available against
which they can be utilized. Deferred tax assets are reviewed at each reporting date and are reduced to the extent that it is no
longer probable that the related tax benefit will be realized.
In determining the amount of current and deferred tax, the Company
takes into account income tax exposures and whether additional taxes and interest may be due. This assessment relies on estimates
and assumptions and may involve a series of judgments about future events. New information may become available that causes the
Company to change its judgment regarding the adequacy of existing tax liabilities, such changes to tax liabilities will impact
tax expense in the period that such a determination is made.
| n. | Earnings per common share |
The Company presents basic and diluted earnings per common share
("EPS") data for its common shares. Basic EPS is calculated by dividing the earnings attributable to common shareholders
of the Company by the weighted average number of common shares outstanding during the period. Earnings attributable to shareholders
are adjusted for accumulated preferred dividends. Diluted EPS is determined by adjusting the earnings attributable to common shareholders
and the weighted average number of common shares outstanding, for the effects of all potentially dilutive common shares, which
comprise convertible debentures and share options granted to employees ("Convertible Instruments"). Only outstanding
and Convertible Instruments that will have a dilutive effect are included in fully diluted calculations.
Pembina
Pipeline Corporation
The dilutive effect of Convertible Instruments is determined whereby
outstanding Convertible Instruments at the end of the period are assumed to have been converted at the beginning of the period
or at the time issued if issued during the year. Amounts charged to earnings relating to the outstanding Convertible Instruments
are added back to earnings for the diluted calculations. The shares issued upon conversion are included in the denominator of
per share basic calculations for the date of issue.
An operating segment is a component of the Company that engages
in business activities from which it may earn revenues and incur expenses, including revenues and expenses that relate to transactions
with any of the Company's other components. All operating segments' operating results are reviewed regularly by the Company's Chief
Executive Officer ("CEO"), Chief Financial Officer ("CFO") and Senior Vice Presidents ("SVPs") to
make decisions about resources to be allocated to the segment and assess its performance, and for which discrete financial information
is available.
Segment results that are reported to the CEO, CFO and SVPs include
items directly attributable to a segment as well as those that can be allocated on a reasonable basis. Unallocated items comprise
mainly corporate assets, corporate general and administrative expenses, finance income and costs and income tax assets and liabilities.
Segment capital expenditure is the total cost incurred during
the period to acquire property, plant and equipment, and intangible assets other than goodwill.
The cash flow statement is prepared using the indirect method
for calculating cash flow from operating activities. Changes in balance sheet items that have not resulted in cash flows such as
share-based payment expense, unwinding of discount rates, unrealized gains and losses, depreciation and amortization, employee
future benefit expenses, deferred income tax expense, share of profit from equity accounted investees, among others, have been
eliminated for the purpose of preparing this statement. Dividends paid to ordinary shareholders, among other expenditures, are
included in financing activities. Interest paid is included in operating activities, with the exception of interest paid during
construction, which is included in investing activities.
| q. | New standards and interpretations not yet adopted |
Certain new standards, interpretations, amendments and improvements
to existing standards were issued by the IASB or IFRIC and are effective for accounting periods beginning on or after January 1,
2015. These standards have not been applied in preparing these Financial Statements. Those which may be relevant to Pembina are
described below:
IFRS 9 Financial Instruments (2014) is effective January 1,
2018 and is available for early adoption. The Company is currently evaluating the impact that the standard will have on its results
of operations and financial position and is assessing when adoption will occur.
IFRS 15 Revenue from Contracts with Customers is effective for
annual periods beginning on or after January 1, 2017. The Company intends to adopt IFRS 15 for the annual period beginning on January
1, 2017. The Company is currently evaluating the impact that the standard will have on its results of operations and financial
position.
| 5. | DETERMINATION OF FAIR VALUES |
A number of the Company's accounting policies and disclosures
require the determination of fair value, for both financial and non-financial assets and liabilities. Fair values have been determined
for measurement and/or disclosure purposes based on the following methods. When applicable, further information about the assumptions
made in determining fair values is disclosed in the notes specific to that asset or liability.
Pembina
Pipeline Corporation
| i) | Property, plant and equipment |
The fair value of property, plant and equipment recognized as
a result of a business combination is based on market values when available and depreciated replacement cost when appropriate.
Depreciated replacement cost reflects adjustments for physical deterioration as well as functional and economic obsolescence.
The fair value of intangible assets acquired in a business combination
is determined using the multi-period excess earnings method, whereby the subject asset is valued after deducting a fair return
on all other assets that are part of creating the related cash flows.
The fair value of other intangible assets is based on the discounted
cash flows expected to be derived from the use and eventual sale of the assets.
Fair value of derivatives are estimated by reference to independent
monthly forward prices, interest rate yield curves, currency rates, quoted market prices per share and volatility rates at the
period ends.
Fair values reflect the credit risk of the instrument and include
adjustments to take account of the credit risk of the company, entity and counterparty when appropriate.
| iv) | Non-derivative financial assets and liabilities |
Fair value, which is determined for disclosure purposes, is
calculated based on the present value of future principal and interest cash flows, discounted at the market rate of interest at
the reporting date. In respect of the convertible debentures, the fair value is determined by the market price of the convertible
debenture on the reporting date. For finance leases the market rate of interest is determined by reference to similar lease agreements.
| v) | Share-based payment transactions |
The fair value of the employee share options is measured using
the Black-Scholes formula. Measurement inputs include share price on measurement date, exercise price of the instrument, expected
volatility (based on weighted average historic volatility adjusted for changes expected due to publicly available information),
weighted average expected life of the instruments (based on historical experience and general option holder behaviour), expected
dividends, expected forfeitures and the risk-free interest rate (based on government bonds). Service and non-market performance
conditions attached to the transactions are not taken into account in determining fair value.
The fair value of the long-term share unit award incentive plan
and associated distribution units are measured based on the reporting date market price of the Company's shares. Expected dividends
are not taken into account in determining fair value as they are issued as additional distribution share units.
The net realizable value of inventories is determined based
on the estimated selling price in the ordinary course of business less estimated cost to sell.
The fair value of finance lease assets is based on market values
at the inception date.
Pembina
Pipeline Corporation
On October 24, 2014, the acquisition date, Pembina acquired the Vantage pipeline system ("Vantage")
and Mistral Midstream Inc.'s ("Mistral") interest in the Saskatchewan Ethane Extraction Plant ("SEEP") for
total consideration of $733 million (U.S.$653 million). To enact the purchase, Pembina acquired all of the issued and outstanding
equity interests of Vantage Pipeline Canada ULC, Vantage Pipeline US LP and Mistral. Consideration for the transaction consisted
of cash of $217 million (U.S.$193 million), the issuance of 5,610, 317 common shares of the Company valued at $266 million (U.S.$237
million), and repayment of Vantage's bank indebtedness of $250 million (U.S.$223 million) at closing (the "Acquisition). The
fair value of the common shares issued was based on the Toronto Stock Exchange listed share price on the date of acquisition.
Vantage is a recently constructed, 700 kilometre, 40 thousand
barrel per day ("mbpd"), high vapour pressure pipeline that originates in Tioga, North Dakota and terminates near Empress,
Alberta. Vantage provides long-term, fee-for-service cash flow and strategic access to the prolific and growing North Dakota Bakken
play for future natural gas liquids opportunities.
SEEP is an under construction 60 million cubic feet per day
deep cut gas processing facility that is centrally located to service the southeast Saskatchewan Bakken region. The facility is
underpined by both a long-term ethane sales agreement and a long-term, fee-for-service processing agreement.
The purchase price equation, subject to finalization of property,
plant and equipment and deferred tax liabilities, is based on assessed fair values and is as follows:
($ millions) |
|
Cash |
10 |
Trade receivables and other |
4 |
Property, plant and equipment |
447 |
Intangible assets |
204 |
Goodwill |
130 |
Other long-term assets |
2 |
Trade payables and accrued liabilities |
(23) |
Deferred tax liabilities |
(41) |
|
733 |
The determination of fair values and the purchase price equation
are based upon an independent valuation. The primary drivers that generate goodwill are synergies and business opportunities from
the integration of Pembina and Vantage. Of the recognized goodwill, $2 million is expected to be deductible for tax purposes.
The Company has recognized $2 million in acquisition-related
expenses. These expenses are included in Other expenses in the Financial Statements. With the exception of share issue costs, which
have been capitalized, all acquisition-related expenses have been expensed as incurred.
Revenue generated by the Vantage business for the period from
the Acquisition date of October 24, 2014 to December 31, 2014, before intersegment eliminations, was $6 million. Net earnings,
before intersegment eliminations, for the same period were $1 million. If the acquisition had occurred on January 1, 2014, management
estimates that consolidated revenue would have increased an additional $24 million, and consolidated profit for the year would
have been $3 million. In determining these amounts, management has assumed that the fair value adjustments that arose on the date
of acquisition would have been the same if the acquisition had occurred on January 1, 2014. In addition, no corporate allocations
of general and administrative expenses have been considered as these are assumed to be insignificant.
Pembina
Pipeline Corporation
| 7. | TRADE RECEIVABLES AND OTHER |
December 31 ($ millions) |
2014 |
2013 |
Trade accounts receivable from customers |
429 |
419 |
Prepayments |
18 |
15 |
Total current trade and other receivables |
447 |
434 |
| 8. | PROPERTY, PLANT AND EQUIPMENT |
($ millions) |
Land and
Land
Rights |
Pipelines |
Facilities
and
Equipment |
Linefill
and
Other |
Assets
Under
Construction |
Total |
Cost |
|
|
|
|
|
|
Balance at December 31, 2012 |
88 |
2,594 |
2,072 |
506 |
752 |
6,012 |
Additions |
7 |
104 |
285 |
59 |
425 |
880 |
Change in decommissioning provision |
|
(19) |
(8) |
|
|
(27) |
Capitalized interest |
|
5 |
5 |
|
25 |
35 |
Transfers |
11 |
105 |
320 |
130 |
(566) |
|
Disposals and other |
|
(6) |
(4) |
2 |
|
(8) |
Balance at December 31, 2013 |
106 |
2,783 |
2,670 |
697 |
636 |
6,892 |
Acquisition (Note 6) |
38 |
345 |
18 |
|
46 |
447 |
Additions |
4 |
129 |
282 |
85 |
912 |
1,412 |
Change in decommissioning provision |
|
52 |
48 |
|
|
100 |
Capitalized interest |
|
4 |
11 |
|
31 |
46 |
Transfers |
|
85 |
256 |
43 |
(384) |
|
Disposals and other |
|
21 |
(9) |
(30) |
(30) |
(48) |
Balance at December 31, 2014 |
148 |
3,419 |
3,276 |
795 |
1,211 |
8,849 |
|
|
|
|
|
|
|
Depreciation |
|
|
|
|
|
|
Balance at December 31, 2012 |
4 |
777 |
172 |
45 |
|
998 |
Depreciation |
1 |
52 |
73 |
27 |
|
153 |
Transfers |
|
|
|
|
|
|
Disposals and other |
|
(5) |
(4) |
|
|
(9) |
Balance at December 31, 2013 |
5 |
824 |
241 |
72 |
|
1,142 |
Depreciation |
|
49 |
88 |
45 |
|
182 |
Transfers |
|
|
|
|
|
|
Disposals and other |
|
(1) |
(9) |
(25) |
|
(35) |
Balance at December 31, 2014 |
5 |
872 |
320 |
92 |
|
1,289 |
|
|
|
|
|
|
|
Carrying amounts |
|
|
|
|
|
|
December 31, 2013 |
101 |
1,959 |
2,429 |
625 |
636 |
5,750 |
December 31, 2014 |
143 |
2,547 |
2,956 |
703 |
1,211 |
7,560 |
Pembina
Pipeline Corporation
Property, plant and equipment under construction
Costs of assets under construction at December 31, 2014 totalled
$1,211 million (2013: $636 million) including capitalized borrowing costs.
For the year ended December 31, 2014, capitalized borrowing
costs related to the construction of new pipelines or facilities amounted to $46 million (2013: $35 million), with capitalization
rates ranging from 4.57 percent to 5.06 percent (2013: 4.4 percent to 5.0 percent).
Commitments
At December 31, 2014, the Company has contractual construction
commitments for property, plant and equipment of $1,978 million (December 31, 2013: $1,322 million), excluding significant projects
awaiting regulatory approval.
| 9. | INTANGIBLE ASSETS AND GOODWILL |
|
|
Intangible Assets |
|
($ millions) |
Goodwill |
Purchase and
Sale Contracts |
Customer
Relationships |
Purchase
Option |
Total |
Total Goodwill
& Intangible
Assets |
Cost |
|
|
|
|
|
|
Balance at December 31, 2012 |
1,976 |
185 |
227 |
277 |
689 |
2,665 |
Additions and other |
(10) |
3 |
|
|
3 |
(7) |
Balance at December 31, 2013 |
1,966 |
188 |
227 |
277 |
692 |
2,658 |
Acquisition (Note 6) |
130 |
|
204 |
|
204 |
334 |
Additions and other |
(6) |
|
1 |
|
1 |
(5) |
Balance at December 31, 2014 |
2,090 |
188 |
432 |
277 |
897 |
2,987 |
|
|
|
|
|
|
|
Amortization |
|
|
|
|
|
|
Accumulated amortization at December 31, 2012 |
|
27 |
15 |
|
42 |
42 |
Amortization |
|
33 |
19 |
|
52 |
52 |
Balance at December 31, 2013 |
|
60 |
34 |
|
94 |
94 |
Amortization |
|
32 |
20 |
|
52 |
52 |
Balance at December 31, 2014 |
|
92 |
54 |
|
146 |
146 |
|
|
|
|
|
|
|
Carrying amounts |
|
|
|
|
|
|
December 31, 2013 |
1,966 |
128 |
193 |
277 |
598 |
2,564 |
December 31, 2014 |
2,090 |
96 |
378 |
277 |
751 |
2,841 |
The purchase option of $277 million to acquire property, plant
and equipment is not being amortized because it is not exercisable until 2018.
The aggregate carrying amount of intangible assets and goodwill
allocated to each operating segment is as follows:
December 31 ($ millions) |
2014 |
2013 |
|
Goodwill |
Intangible
Assets |
Total |
Goodwill |
Intangible
Assets |
Total |
Conventional Pipelines |
440 |
187 |
627 |
316 |
|
316 |
Oil Sands & Heavy Oil |
28 |
5 |
33 |
28 |
5 |
33 |
Gas Services |
182 |
35 |
217 |
175 |
20 |
195 |
Midstream |
1,440 |
524 |
1,964 |
1,447 |
573 |
2,020 |
|
2,090 |
751 |
2,841 |
1,966 |
598 |
2,564 |
Pembina
Pipeline Corporation
Impairment testing
For the purpose of impairment testing, goodwill is allocated
to the Company's operating segments which represent the lowest level within the Company at which the goodwill is monitored for
internal management purposes. Impairment testing for goodwill was performed at December 31, 2014. The recoverable amounts were
based on their value in use and were determined to be higher than their carrying amounts.
Value in use was determined by discounting the future cash flows
generated from the continuing use of each operating segment. The calculation of the value in use was based on the following key
assumptions:
Cash flows were projected based on past experience, actual operating
results and the first 4 years of the business plan approved by management. Cash flows for periods up to 75 years (2013: 75 years)
were extrapolated using a constant medium-term inflation rate of 2 percent (2013: 2 percent), except where contracted, long-term
cash flows indicated that no inflation should be applied or a specific reduction in cash flows was more appropriate. Pre-tax discount
rates between 7.2 percent and 8.9 percent were applied in determining the recoverable amount of the operating segments. (2013:
8.6 and 9.4 percent). The discount rates were estimated based on past experience, the Company's risk free rate and average cost
of debt, targeted debt to equity ratio, in addition to estimates of the specific operating segment's equity risk premium, size
premium, small capitalization premium, projection risk, betas and tax rate.
| 10. | INVESTMENTS IN EQUITY ACCOUNTED INVESTEES |
The Company has a 50 percent interest in two joint ventures
(Fort Saskatchewan Ethylene Storage Corporation and Fort Saskatchewan Ethylene Storage Limited Partnership) that are reported using
the equity method of accounting. The carrying value of the investments at December 31, 2014 is $153 million (2013: $165 million).
At December 31, 2014, the Company has contractual commitments
for additional investment in its equity accounted investees of $5 million (December 31, 2013: $24 million).
Pembina
Pipeline Corporation
The movements of the components of the deferred tax assets and
deferred tax liabilities are as follows:
($ millions) |
Balance at
December 31,
2013 |
Recognized
in Earnings |
Recognized in
Other
Comprehensive
Income |
Acquisition |
Equity |
Other |
Balance at
December 31,
2014 |
Deferred income tax assets |
|
|
|
|
|
|
|
Derivative financial instruments |
6 |
(3) |
|
|
|
|
3 |
Employee benefits |
|
|
5 |
|
|
|
5 |
Share-based payments |
|
13 |
|
|
|
|
13 |
Provisions |
78 |
26 |
|
|
|
|
104 |
Benefit of loss carryforwards |
14 |
(1) |
|
9 |
|
|
22 |
Other deductible temporary differences |
22 |
(1) |
|
1 |
3 |
(2) |
23 |
|
|
|
|
|
|
|
|
Deferred income tax liabilities |
|
|
|
|
|
|
|
Property, plant and equipment |
(588) |
(115) |
(1) |
2 |
|
3 |
(699) |
Intangible assets |
(124) |
6 |
|
(53) |
|
|
(171) |
Investments in equity accounted investees |
(17) |
3 |
|
|
|
7 |
(7) |
Taxable limited partnership income deferral |
(64) |
16 |
|
|
|
|
(48) |
Other taxable temporary differences |
(11) |
(8) |
|
|
|
|
(19) |
Total deferred tax liabilities(1) |
(684) |
(64) |
4 |
(41) |
3 |
8 |
(774) |
| (1) | The
Company has recognized a net deferred tax asset of $19 million (December 31, 2013: $15
million) relating to its U.S. subsidiaries. The Company has determined that it is probable
that future taxable profits will be sufficient to utilize the deferred tax asset. |
Pembina
Pipeline Corporation
($ millions) |
Balance at
December 31,
2012 |
Recognized
in Earnings |
Recognized in
Other
Comprehensive
Income |
Acquisition |
Equity |
Other |
Balance at
December 31,
2013 |
Deferred income tax assets |
|
|
|
|
|
|
|
Derivative financial instruments |
23 |
(18) |
|
1 |
|
|
6 |
Employee benefits |
7 |
(1) |
(6) |
|
|
|
|
Share-based payments |
8 |
(8) |
|
|
|
|
|
Provisions |
115 |
(37) |
|
|
|
|
78 |
Benefit of loss carryforwards |
77 |
(63) |
|
|
|
|
14 |
Other deductible temporary differences |
2 |
12 |
|
|
7 |
1 |
22 |
Deferred income tax liabilities |
|
|
|
|
|
|
|
Property, plant and equipment |
(590) |
|
|
2 |
|
|
(588) |
Intangible assets |
(127) |
3 |
|
|
|
|
(124) |
Investments in equity accounted investees |
(22) |
5 |
|
|
|
|
(17) |
Taxable limited partnership income deferral |
(75) |
11 |
|
|
|
|
(64) |
Other taxable temporary differences |
(2) |
(9) |
|
|
|
|
(11) |
Total deferred tax liabilities(1) |
(584) |
(105) |
(6) |
3 |
7 |
1 |
(684) |
| (1) | The
Company has recognized a net deferred tax asset of $15 million at December 31, 2013 (December
31, 2012: $8 million) relating to its U.S. subsidiaries. The Company has determined that
it is probable that future taxable profits will be sufficient to utilize the deferred
tax asset. |
The Company's consolidated statutory tax rate for the year ended
December 31, 2014 was 25 percent (2013: 25 percent).
Reconciliation of effective tax rate
Year Ended December 31 ($ millions, except as noted) |
2014 |
2013 |
Earnings before income tax |
572 |
494 |
|
|
|
Statutory tax rate (percent) |
25 |
25 |
|
|
|
Income tax at statutory rate |
143 |
124 |
Tax rate changes on deferred income tax balances |
2 |
1 |
Changes in estimate and other |
8 |
5 |
Permanent items |
14 |
13 |
Income tax expense |
167 |
143 |
Pembina
Pipeline Corporation
Income tax expense
Year Ended December 31 ($ millions) |
2014 |
2013 |
Current tax expense |
103 |
38 |
Deferred tax expense |
|
|
Origination and reversal of temporary differences |
57 |
51 |
Tax rate changes on deferred tax balances |
2 |
1 |
Decrease in tax loss carry forward |
5 |
53 |
Total deferred tax expense |
64 |
105 |
Total income tax expense |
167 |
143 |
The movement of the net deferred tax liability is as follows:
($ millions) |
2014 |
2013 |
Balance at January 1 |
684 |
584 |
Deferred income tax expense |
64 |
105 |
Income tax expense (benefit) in other comprehensive income |
(4) |
6 |
Acquisition |
41 |
(3) |
Preferred share issue costs |
(3) |
(7) |
Other |
(8) |
(1) |
Balance at December 31 |
774 |
684 |
Deferred tax items recovered directly in equity
Year Ended December 31 ($ millions) |
2014 |
2013 |
Preferred share issue costs |
3 |
7 |
Other comprehensive (income) loss |
4 |
(6) |
Deferred tax items recovered directly in equity |
7 |
1 |
Cash taxes paid during the year were $81 million (2013: nil).
The Company has temporary differences associated with its investments
in foreign subsidiaries, branches, and interests in joint arrangements. At December 31, 2014, the Company has not recorded a deferred
tax asset or liability for these temporary differences (December 31, 2013: nil) as the Company controls the timing of the reversal
and it is not probable that the temporary differences will reverse in the foreseeable future.
At December 31, 2014, the Company had $34 million (December
31, 2013: $37 million) of U.S. tax losses that will expire after 2030. The Company has recorded deferred tax assets in respect
of these losses, as it has been determined that it is probable that future taxable profits will be sufficient to utilize these
losses.
| 12. | TRADE PAYABLES AND ACCRUED LIABILITIES |
December 31 ($ millions) |
2014 |
2013 |
Trade payables |
444 |
359 |
Non-trade payables & accrued liabilities |
106 |
102 |
Total current trade and other payables |
550 |
461 |
This note provides information about the contractual terms of
the Company's interest-bearing loans and borrowings, which are measured at amortized cost.
Pembina
Pipeline Corporation
Carrying value, terms and conditions, and debt maturity schedule
|
|
|
|
Carrying value |
December 31 ($ millions) |
Available facilities at
December 31, 2014 |
Nominal
interest rate |
Year of
maturity |
2014 |
2013 |
Operating facility(1) |
30 |
prime + 0.45
or BA(2) + 1.45 |
2015(3) |
|
|
Revolving unsecured credit facility(1) |
1,500 |
prime + 0.45
or BA(2) + 1.45 |
2019 |
506 |
46 |
Senior unsecured notes – Series A |
|
5.99 |
2014 |
|
175 |
Senior unsecured notes – Series C |
200 |
5.58 |
2021 |
197 |
197 |
Senior unsecured notes – Series D |
267 |
5.91 |
2019 |
266 |
266 |
Senior unsecured term facility |
|
6.16 |
2014 |
|
75 |
Senior unsecured medium-term notes 1 |
250 |
4.89 |
2021 |
249 |
249 |
Senior unsecured medium-term notes 2 |
450 |
3.77 |
2022 |
448 |
448 |
Senior unsecured medium-term notes 3 |
200 |
4.75 |
2043 |
198 |
198 |
Senior unsecured medium-term notes 4 |
600 |
4.81 |
2044 |
596 |
|
Subsidiary debt |
|
5.04 |
2014 |
|
8 |
Finance lease liabilities |
|
|
|
10 |
9 |
Total interest bearing liabilities |
3,497 |
|
|
2,470 |
1,671 |
Less current portion |
|
|
|
(4) |
(262) |
Total non-current |
|
|
|
2,466 |
1,409 |
| (1) | The
nominal interest rate is based on the Company's credit rating at December 31, 2014. |
| (3) | Operating
facility expected to be renewed on an annual basis. |
Pembina's $1.5 billion revolving unsecured credit facility was
extended by one year from March 2018 to March 2019 and the $30 million operating facility was also extended by one year from July
2014 to July 2015.
On April 4, 2014, the Company issued $600 million senior unsecured
medium-term notes and subsequently repaid the $75 million senior unsecured term facility on April 7, 2014 and the $175 million
senior unsecured notes (Series A) on June 16, 2014.
Subsequent to the year-end, Pembina closed an offering of $600
million of senior unsecured medium-term notes. See Note 29 regarding subsequent events.
All facilities are governed by specific debt covenants which
Pembina has been in compliance with during the years ended December 31, 2014 and 2013.
For more information about the Company's exposure to interest
rate, foreign currency and liquidity risk, see financial instruments and financial risk management Note 24.
Pembina
Pipeline Corporation
| 14. | CONVERTIBLE DEBENTURES |
($ millions, except as noted) |
Series C – 5.75% |
Series E – 5.75% |
Series F – 5.75% |
Total |
Conversion price (dollars) |
$28.55 |
$24.94 |
$29.53 |
|
Interest payable semi-annually in arrears on: |
May 31 and November 30 |
June 30 and
December 31 |
June 30 and
December 31 |
|
Maturity date |
November 30, 2020 |
December 31, 2017 |
December 31, 2018 |
|
Balance at December 31, 2012 |
290 |
160 |
160 |
610 |
Conversions |
(1) |
(9) |
(1) |
(11) |
Unwinding of discount rate |
|
1 |
1 |
2 |
Deferred financing fees (net of amortization) |
1 |
1 |
1 |
3 |
Balance at December 31, 2013 |
290 |
153 |
161 |
604 |
Conversions |
(62) |
(134) |
(21) |
(217) |
Unwinding of discount rate |
|
|
1 |
1 |
Deferred financing fee (net of amortization) |
1 |
1 |
1 |
3 |
Balance at December 31, 2014 |
229 |
20 |
142 |
391 |
The Series C debentures may be converted at the option of the
holder at a conversion price of $28.55 per common share at any time prior to maturity and may be redeemed by the Company. The Company
may, at its option prior to November 30, 2016, elect to redeem the Series C debentures in whole or in part, provided that the volume
weighted average trading price of the common shares on the TSX during the 20 consecutive trading days ending on the fifth trading
day preceding the date on which the notice of redemption is given is not less than 125 percent of the conversion price of the Series
C debentures. On or after November 30, 2016, the Series C debentures may be redeemed in whole or in part at the option of the Company
at a price equal to their principal amount plus accrued and unpaid interest. The Company may also elect to pay interest on the
debentures by issuing shares.
The Series E debentures may be converted at the option of the
holder at a conversion price of $24.94 per common share at any time prior to maturity and may be redeemed by the Company. The Company
may, at its option prior to December 31, 2015, elect to redeem the Series E debentures in whole or in part, provided that the volume
weighted average trading price of the common shares on the TSX during the 20 consecutive trading days ending on the fifth trading
day preceding the date on which the notice of redemption is given is not less than 125 percent of the conversion price of the Series
E debentures. On or after December 31, 2015, the Series E debentures may be redeemed in whole or in part at the option of the Company
at a price equal to their principal amount plus accrued and unpaid interest. Any accrued unpaid interest will be paid in cash.
The Series F debentures may be converted at the option of the
holder at a conversion price of $29.53 per common share at any time prior to maturity and may be redeemed by the Company. The Company
may, at its option prior to December 31, 2016, elect to redeem the Series F debentures in whole or in part, provided that the volume
weighted average trading price of the common shares on the TSX during the 20 consecutive trading days ending on the fifth trading
day preceding the date on which the notice of redemption is given is not less than 125 percent of the conversion price of the Series
F debentures. On or after December 31, 2016, the Series F debentures may be redeemed in whole or in part at the option of the Company
at a price equal to their principal amount plus accrued and unpaid interest. Any accrued unpaid interest will be paid in cash.
The Company retains a cash conversion option on the Series E
and F convertible debentures, allowing the Company to pay cash to the converting holder of the debentures, at the option of the
Company. For convertible debentures with a cash conversion option, the conversion feature is recognized as an embedded derivative
and accounted for as a derivative financial instrument, measured at fair value using an option pricing model.
Pembina
Pipeline Corporation
The Company has estimated the net present value of its total
decommissioning obligations based on a total future liability of $410 million (2013: $309 million). The estimate has applied a
medium-term inflation rate and current discount rate and includes a revision in the decommissioning assumptions and associated
costs and timing of payments. The obligations are expected to be paid over the next 75 years (2013: 75 years) with majority being
paid between 30 and 40 years. The Company applied a 2 percent inflation rate per annum (2013: 2 percent) and a risk free rate of
2.3 percent (2013: 3.2 percent) to calculate the present value of the decommissioning provision. Changes in the measurement of
the decommissioning provision were added to, or deducted from, the cost of the related asset in property, plant and equipment.
Of the re-measurement reduction of the decommissioning provision, $8 million (2013: $33 million) was in excess of the carrying
amount of the related asset and was credited to depreciation expense.
The property, plant and equipment of the Company consist primarily
of underground pipelines, above ground equipment facilities and storage assets. No amount has been recorded relating to the removal
of the underground pipelines or for the storage assets as the potential obligations relating to these assets cannot be reasonably
estimated due to the indeterminate timing or scope of the asset retirement. As the timing and scope of retirement become determinable
for these assets, a provision for the cost of retirement will be recorded.
($ millions) |
2014 |
2013 |
Balance at January 1 |
309 |
361 |
Unwinding of discount rate |
9 |
9 |
Decommissioning liabilities settled during the period |
(1) |
(1) |
Change in rates |
111 |
(88) |
Additions |
41 |
4 |
Change in estimates and other |
(59) |
24 |
Balance at December 31 |
410 |
309 |
Pembina is authorized to issue an unlimited number of common
shares and an unlimited number of a class of preferred shares designated as Preferred Shares, Series A. The holders of the common
shares are entitled to receive notice of, attend at and vote at any meeting of the shareholders of the Company, receive dividends
declared and share in the remaining property of the Company upon distribution of the assets of the Company among its shareholders
for the purpose of winding-up its affairs.
Pembina has adopted a shareholder rights plan ("Plan")
as a mechanism designed to assist the board in ensuring the fair and equal treatment of all shareholders in the face of an actual
or contemplated unsolicited bid to take control of the Company. Take-over bids may be structured in such a way as to be coercive
or discriminatory in effect, or may be initiated at a time when it will be difficult for the board to prepare an adequate response.
Such offers may result in shareholders receiving unequal or unfair treatment, or not realizing the full or maximum value of their
investment in Pembina. The Plan discourages the making of any such offers by creating the potential of significant dilution to
any offeror who does so.
Pembina
Pipeline Corporation
Common Share Capital
($ millions, except as noted) |
Number of
Common Shares
(thousands) |
Common
Share Capital |
Balance at December 31, 2012 |
293,226 |
5,324 |
Issued, net of issue costs |
11,207 |
335 |
Dividend reinvestment plan |
9,384 |
286 |
Share-based payment transactions, debenture conversions and other |
1,327 |
27 |
Balance at December 31, 2013 |
315,144 |
5,972 |
Issued
on Acquisition, net of issue costs (Note 6) |
5,610 |
265 |
Dividend reinvestment plan |
7,878 |
321 |
Debenture conversion |
8,500 |
293 |
Share-based payment transactions and other |
792 |
25 |
Balance at December 31, 2014 |
337,924 |
6,876 |
Preferred Share Capital
($ millions, except as noted) |
Number of
Preferred Shares
(thousands) |
Preferred
Share Capital |
Balance at December 31, 2012 |
|
|
Class A, Series 1 Preferred shares issued, net of issue costs |
10,000 |
244 |
Class A, Series 3 Preferred shares issued, net of issue costs |
6,000 |
147 |
Balance at December 31, 2013 |
16,000 |
391 |
Class A, Series 5 Preferred shares issued, net of issue costs |
10,000 |
244 |
Class A, Series 7 Preferred shares issued, net of issue costs |
10,000 |
245 |
Balance at December 31, 2014 |
36,000 |
880 |
On July 26, 2013, Pembina issued 10 million cumulative redeemable
5-year rate reset Class A Preferred shares, Series 1 ("Series 1 Preferred Shares") at a price of $25.00 per Series 1
Preferred Share for aggregate proceeds of $250 million. The holders of Series 1 Preferred Shares are entitled to receive fixed
cumulative dividends at an annual rate of $1.0625 per share when declared by the Board of Directors. The dividend rate will reset
on December 1, 2018 and every five years thereafter at a rate equal to the sum of the then five-year Government of Canada bond
yield plus 2.47 percent. The Series 1 Preferred Shares are redeemable by the Company at the Company's option on December 1, 2018
and on December 1 of every fifth year thereafter.
Holders of the Series 1 Preferred Shares have the right to convert
all or any part of their shares into cumulative redeemable floating rate Class A Preferred shares, Series 2 ("Series 2 Preferred
Shares"), subject to certain conditions, on December 1, 2018 and on December 1 of every fifth year thereafter. Holders of
Series 2 Preferred Shares will be entitled to receive cumulative quarterly floating dividends at a rate equal to the sum of the
then 90-day Government of Canada Treasury Bill yield plus 2.47 percent, if, as and when declared by the Board of Directors of Pembina.
On October 2, 2013, Pembina closed its offering of 6 million
cumulative redeemable rate reset Class A Preferred shares, Series 3 (the "Series 3 Preferred Shares") at a price of $25.00
per share for aggregate proceeds of $150 million. The holders of Series 3 Preferred Shares are entitled to receive fixed cumulative
dividends at an annual rate of $1.1750 per share, if, as and when declared by the Board of Directors. The dividend rate will reset
on March 1, 2019 and every five years thereafter at a rate equal to the sum of the then five-year Government of Canada bond yield
plus 2.60 percent. The Series 3 Preferred Shares are redeemable by the Company at its option on March 1, 2019 and on March 1 of
every fifth year thereafter.
Pembina
Pipeline Corporation
Holders of the Series 3 Preferred Shares have the right to convert
their shares into cumulative redeemable floating rate Class A Preferred shares, Series 4 ("Series 4 Preferred Shares"),
subject to certain conditions, on March 1, 2019 and on March 1 of every fifth year thereafter. Holders of Series 4 Preferred Shares
will be entitled to receive a cumulative quarterly floating dividend at a rate equal to the sum of the then 90-day Government
of Canada Treasury Bill yield plus 2.60 percent, if, as and when declared by the Board of Directors of Pembina.
On January 16, 2014, Pembina closed its offering of 10 million
cumulative redeemable rate reset Class A Preferred shares, Series 5 (the "Series 5 Preferred Shares") at a price of $25.00
per share for aggregate proceeds of $250 million. The holders of Series 5 Preferred Shares are
entitled to receive fixed cumulative dividends at an annual rate of $1.25 per share, if, as and when declared by the Board of Directors.
The dividend rate will reset on June 1, 2019 and every five years thereafter at a rate equal to the sum of the then five-year
Government of Canada bond yield plus 3.00 percent. The Series 5 Preferred Shares are redeemable by the Company at its option on
June 1, 2019 and on June 1 of every fifth year thereafter.
Holders of the Series 5 Preferred Shares have the right to convert
their shares into cumulative redeemable floating rate Class A Preferred shares, Series 6 ("Series 6 Preferred Shares"),
subject to certain conditions, on June 1, 2019 and on June 1 of every fifth year thereafter. Holders of Series 5 Preferred Shares
will be entitled to receive a cumulative quarterly floating dividend at a rate equal to the sum of the then 90-day Government of
Canada Treasury Bill yield plus 3.00 percent, if, as and when declared by the Board of Directors of Pembina.
On September 11, 2014, Pembina closed its offering of
10 million cumulative redeemable rate reset Class A Preferred shares, Series 7 (the "Series 7 Preferred Shares") at
a price of $25.00 per share for aggregate proceeds of $250 million. The holders of Series 7 Preferred Shares are entitled to
receive fixed cumulative dividends at an annual rate of $1.125 per share, if, as and when declared by the Board of Directors.
The dividend rate will reset on December 1, 2019 and every five years thereafter at a rate equal to the sum of the then
five-year Government of Canada bond yield plus 2.94 percent. The Series 7 Preferred Shares are redeemable by the Company at
its option on December 1, 2019 and on December 1 of every fifth year thereafter.
Holders of the Series 7 Preferred Shares have the right to convert
their shares into cumulative redeemable floating rate Class A Preferred shares, Series 8 ("Series 8 Preferred Shares"),
subject to certain conditions, on December 1, 2019 and on December 1 of every fifth year thereafter. Holders of Series 7 Preferred
Shares will be entitled to receive a cumulative quarterly floating dividend at a rate equal to the sum of the then 90-day Government
of Canada Treasury Bill yield plus 2.94 percent, if, as and when declared by the Board of Directors of Pembina.
Dividends
The Company has a Premium Dividend™ and Dividend Reinvestment
Plan. Eligible common shareholders have the opportunity to receive additional common shares by reinvesting the cash dividends declared
payable by the Company on its common shares.
Pembina
Pipeline Corporation
The following dividends were declared by the Company:
Year Ended December 31 ($ millions) |
2014 |
2013 |
Common shares |
|
|
$1.72 per qualifying share (2013: $1.65) |
563 |
507 |
Preferred shares |
|
|
$1.06250 per qualifying Series 1 share (2013: $.3726) |
11 |
4 |
$1.17500 per qualifying Series 3 share (2013: $.1932) |
7 |
1 |
$1.08820 per qualifying Series 5 share (2013: nil) |
11 |
|
$0.24970 per qualifying Series 7 share (2013: nil) |
2 |
|
|
31 |
5 |
On January 12, 2015, Pembina announced that the Board of Directors
declared a dividend for January of $0.145 per qualifying common share ($1.74 annualized) in the total amount of $49
million. This dividend was paid on February 13, 2015 to shareholders of record on January 25, 2015.
On February 6, 2015, Pembina announced that the Board of Directors
declared a dividend for February of $0.145 per qualifying common share ($1.74 annualized) payable on March 13, 2015 to shareholders
of record on February 25, 2015.
On January 12, 2015, Pembina announced that the Board of Directors
had declared a quarterly dividend of $0.265625 per qualifying Series 1 preferred share, $0.29375 per qualifying Series 3 preferred
share, $0.3125 per qualifying Series 5 preferred share and $0.28125 per qualifying Series 7 preferred share in the total amount
of $10 million payable on March 1, 2015.
Deferred revenue consists of asset purchases that occurred
at a nominal value in exchange for future toll reductions which is amortized to revenue over the life of the asset. Deferred revenue
also includes other payments received from customers related to capital expenditures which are amortized over the lease or contract
terms.
Year Ended December 31 ($ millions) |
2014 |
2013 |
Salaries and wages |
177 |
133 |
Share-based payment transactions |
39 |
34 |
Short-term incentive plan |
28 |
26 |
Pension plan expense |
13 |
12 |
Health, savings plan and other benefits |
14 |
10 |
|
271 |
215 |
Pembina
Pipeline Corporation
Year Ended December 31 ($ millions) |
2014 |
2013 |
Interest income from: |
|
|
Bank deposits and other |
(5) |
(5) |
Interest expense on financial liabilities measured at amortized cost: |
|
|
Loans and borrowings |
57 |
55 |
Convertible debentures |
33 |
42 |
Unwinding of discount rates |
9 |
9 |
Loss (gain) on fair value of non-commodity-related derivative financial instruments |
2 |
(6) |
Loss on revaluation of conversion feature of series E and F convertible debentures |
41 |
71 |
Foreign exchange gains and other |
(7) |
|
|
130 |
166 |
Net interest paid of $120 million (2013: $115 million)
includes interest paid during construction of $44 million (2013: $35 million).
The Company determines its reportable segments based on the
nature of operations and includes four operating segments: Conventional Pipelines, Oil Sands & Heavy Oil, Gas Services and
Midstream.
Conventional
Pipelines consists of the tariff based operations of pipelines and related facilities to deliver crude oil, condensate and NGL
in Alberta, British Columbia, Saskatchewan, and
North Dakota, United States.
Oil Sands & Heavy Oil consists of the Syncrude, Horizon,
Nipisi and Mitsue Pipelines, and the Cheecham Lateral. These pipelines and related facilities deliver synthetic crude oil produced
from oil sands under long-term cost-of-service arrangements.
Gas Services consists of natural gas gathering and processing
facilities, including 7 gas plants, 12 compressor stations and over 375 kilometres of gathering systems.
Midstream consists of the Company's interests in extraction
and fractionation facilities, terminalling and storage hub services under a mixture of short, medium and long-term contractual
arrangements.
The financial results of the business segments are included below. Performance is measured based on results
from operating activities, net of depreciation and amortization, as included in the internal management reports that are reviewed
by the Company's CEO, CFO and Senior Vice Presidents. The segments results from operating activities, before depreciation and amortization,
is used to measure performance as management believes that such information is the most relevant in evaluating results of certain
segments relative to other entities that operate within these industries. Intersegment transactions are recorded at market value
and eliminated under corporate and intersegment eliminations.
Pembina
Pipeline Corporation
Year Ended December 31, 2014 ($ millions) |
Conventional
Pipelines(1)(4) |
Oil Sands &
Heavy Oil |
Gas
Services |
Midstream(2) |
Corporate &
Intersegment
Eliminations |
Total |
Revenue: |
|
|
|
|
|
|
Pipeline transportation |
513 |
204 |
|
|
(72) |
645 |
Terminalling, storage and hub services |
|
|
|
5,259 |
|
5,259 |
Gas Services |
|
|
165 |
|
|
165 |
Total revenue |
513 |
204 |
165 |
5,259 |
(72) |
6,069 |
Operating expenses |
211 |
68 |
58 |
69 |
(5) |
401 |
Cost
of goods sold, including product purchases(3) |
|
|
|
4,672 |
(72) |
4,600 |
Realized gain on commodity-related derivative financial instruments |
|
|
|
10 |
|
10 |
Operating margin |
302 |
136 |
107 |
528 |
5 |
1,078 |
Depreciation and amortization included in operations |
42 |
17 |
22 |
135 |
|
216 |
Unrealized gain on commodity-related derivative financial instruments |
|
|
|
14 |
|
14 |
Gross profit |
260 |
119 |
85 |
407 |
5 |
876 |
Depreciation included in general and administrative |
|
|
|
|
10 |
10 |
Other general and administrative |
9 |
3 |
6 |
24 |
104 |
146 |
Other expenses |
2 |
12 |
1 |
1 |
2 |
18 |
Reportable segment results from operating activities |
249 |
104 |
78 |
382 |
(111) |
702 |
Net finance costs (income) |
5 |
3 |
1 |
(1) |
122 |
130 |
Reportable segment earnings (loss) before tax |
244 |
101 |
77 |
383 |
(233) |
572 |
Share of loss of investments in equity accounted investees, net of tax |
|
|
|
22 |
|
22 |
Capital expenditures |
628 |
41 |
295 |
390 |
58 |
1,412 |
| (1) | 5
percent of Conventional Pipelines revenue is under regulated tolling arrangements. |
| (2) | NGL
product and services, terminalling, storage and hub services revenue includes $209 million
associated with U.S. midstream sales. |
| (3) | Includes
inventory write-down to net realizable value of $38 million. |
| (4) | Conventional
Pipelines revenue includes $1 million associated with U.S. pipeline sales. |
Pembina
Pipeline Corporation
Year Ended December 31, 2013 ($ millions) |
Conventional
Pipelines(1) |
Oil Sands &
Heavy Oil |
Gas
Services |
Midstream(2) |
Corporate &
Intersegment
Eliminations |
Total |
Revenue: |
|
|
|
|
|
|
Pipeline transportation |
411 |
195 |
|
|
(67) |
539 |
Terminalling, storage and hub services |
|
|
|
4,346 |
|
4,346 |
Gas Services |
|
|
121 |
|
|
121 |
Total revenue |
411 |
195 |
121 |
4,346 |
(67) |
5,006 |
Operating expenses |
162 |
64 |
43 |
91 |
(4) |
356 |
Cost of goods sold, including product purchases |
|
|
|
3,766 |
(66) |
3,700 |
Realized gain (loss) on commodity-related derivative financial instruments |
2 |
|
|
(3) |
|
(1) |
Operating margin |
251 |
131 |
78 |
486 |
3 |
949 |
Depreciation and amortization included in operations |
12 |
17 |
20 |
114 |
|
163 |
Unrealized gain on commodity-related derivative financial instruments |
1 |
|
|
6 |
|
7 |
Gross profit |
240 |
114 |
58 |
378 |
3 |
793 |
Depreciation included in general and administrative |
|
|
|
|
8 |
8 |
Other general and administrative |
9 |
3 |
6 |
25 |
81 |
124 |
Acquisition-related and other expenses (income) |
2 |
|
|
1 |
(2) |
1 |
Reportable segment results from operating activities |
229 |
111 |
52 |
352 |
(84) |
660 |
Net finance costs (income) |
5 |
1 |
1 |
(4) |
163 |
166 |
Reportable segment earnings (loss) before tax |
224 |
110 |
51 |
356 |
(247) |
494 |
Capital expenditures |
325 |
38 |
258 |
254 |
5 |
880 |
| (1) | 5
percent of Conventional Pipelines revenue is under regulated tolling arrangements. |
| (2) | NGL
product and services, terminalling, storage and hub services revenue includes $158 million
associated with U.S. midstream sales. |
| 21. | EARNINGS PER COMMON SHARE |
Basic earnings per common share
The calculation of basic earnings per common share at December
31, 2014 was based on the earnings attributable to common shareholders of $348 million (2013: $344 million) and a weighted average
number of common shares outstanding of 326 million (2013: 307 million).
Diluted earnings per common share
The calculation of diluted earnings per common share at December
31, 2014 was based on earnings attributable to common shareholders of $348 million (December 31, 2013: $344 million), and weighted
average number of common shares outstanding after adjustment for the effects of all dilutive potential common shares of 328 million
(2013: 308 million).
Earnings attributable to common shareholders
Year Ended December 31 ($ millions) |
2014 |
2013 |
Earnings |
383 |
351 |
Dividends on preferred shares |
(31) |
(5) |
Cumulative dividends on preferred shares, not yet declared |
(4) |
(2) |
Earnings contributable to common shareholders (basic and diluted) |
348 |
344 |
Pembina
Pipeline Corporation
Weighted average number of common shares
(In thousands of shares, except as noted) |
2014 |
2013 |
Issued common shares at January 1 |
315,144 |
293,226 |
Effect of shares issued |
1,061 |
8,781 |
Effect of share options exercised |
392 |
350 |
Effect of conversion of convertible debentures |
5,622 |
83 |
Effect of shares issued under dividend reinvestment plan |
4,047 |
4,771 |
Weighted average number of common shares at December 31 (basic) |
326,266 |
307,211 |
|
|
|
Dilutive effect of share options on issue |
1,390 |
870 |
Weighted average number of common shares at December 31 (diluted) |
327,656 |
308,081 |
|
|
|
Basic earnings per common share (dollars) |
$1.07 |
$1.12 |
Diluted earnings per common share (dollars) |
$1.06 |
$1.12 |
At December 31, 2014, the effect of the
conversion of the convertible debentures was excluded from the diluted earnings per common share calculation as the impact was
anti-dilutive. If the convertible debentures were included, an additional 17 million (2013: 23 million) common shares would be
added to the weighted average number of common shares and $25 million (2013: $32 million) would be added to earnings, representing
after tax interest expense of the convertible debentures.
The average market value of the Company's shares for purposes
of calculating the dilutive effect of share options was based on quoted market prices for the period during which the options were
outstanding.
December 31 ($ millions) |
2014 |
2013 |
Registered defined benefit (asset) obligation |
12 |
(5) |
Supplemental defined benefit obligation |
8 |
7 |
Other accrued benefit obligations |
1 |
1 |
Net employee benefit obligations |
21 |
3 |
The Company maintains a defined contribution plan and non-contributory
defined benefit pension plans covering its employees. The Company contributes 5 to 10 percent of an employee's earnings to the
defined contribution plan until the employee's age plus years of service equals 50, at which time they become eligible for the
defined benefit plans. The defined benefit plans include a funded registered plan for all employees and an unfunded supplemental
retirement plan for those employees affected by the Canada Revenue Agency maximum pension limits. The Company also has other accrued
benefit obligations which include a non-contribution unfunded post employment extended health and dental plan provided to a few
remaining retired employees. The defined benefit plans are administered by a single pension fund that is legally separated from
the Company. Benefits under the plans are based on the length of service and the annual average best three years of earnings during
the last ten years of service of the employee. Benefits paid out of the plans are not indexed. The Company measures its accrued
benefit obligations and the fair value of plan assets for accounting purposes as at December 31 of each year. The most recent actuarial
valuation was at December 31, 2014. The defined benefit plans expose the Company to actuarial risks such as longevity risk, interest
rate risk, and market (investment) risk.
Pembina
Pipeline Corporation
Defined benefit obligations
December 31 |
2014 |
2013 |
($ millions) |
Registered
Plan |
Supplemental
Plan |
Registered
Plan |
Supplemental
Plan |
Present value of unfunded obligations |
|
8 |
|
7 |
Present value of funded obligations |
149 |
|
119 |
|
Total present value of obligations |
149 |
8 |
119 |
7 |
Fair value of plan assets |
137 |
|
124 |
|
Recognized (liability) asset for defined benefit obligations |
(12) |
(8) |
5 |
(7) |
The Company funds the defined benefit obligation plans in accordance
with government regulations by contributing to trust funds administered by an independent trustee. The funds are invested primarily
in equities and bonds. Defined benefit plan contributions totalled $10 million for the year ended December 31, 2014 (2013: $13
million).
The Company has determined that, in accordance with the terms
and conditions of the defined benefit plans, and in accordance with statutory requirements of the plans, the present value of refunds
or reductions in future contributions is not lower than the balance of the total fair value of the plan assets less the total present
value of obligations. As such, no decrease in the defined benefit asset is necessary at December 31, 2014 and December 31, 2013.
Registered defined benefit pension plan assets comprise
December 31 (percentages) |
2014 |
2013 |
Equity securities |
60 |
64 |
Debt |
38 |
35 |
Other |
2 |
1 |
|
100 |
100 |
Movement in the present value of the defined benefit pension
obligation
Year Ended December 31 |
2014 |
2013 |
($ millions) |
Registered
Plan |
Supplemental
Plan |
Registered
Plan |
Supplemental
Plan |
Defined benefits obligations at January 1 |
119 |
7 |
122 |
6 |
Benefits paid by the plan |
(6) |
|
(6) |
|
Current service costs |
8 |
|
9 |
1 |
Interest expense |
6 |
|
5 |
|
Actuarial losses (gains) in other comprehensive income |
22 |
1 |
(11) |
|
Defined benefit obligations at December 31 |
149 |
8 |
119 |
7 |
Movement in the present value of registered defined benefit
pension plan assets
Year Ended December 31 ($ millions) |
2014 |
2013 |
Fair value of plan assets at January 1 |
124 |
100 |
Contributions paid into the plan |
10 |
13 |
Benefits paid by the plan |
(6) |
(6) |
Return on plan assets |
4 |
12 |
Interest income |
6 |
5 |
Fair value of registered plan assets at December 31 |
138 |
124 |
Pembina
Pipeline Corporation
Expense recognition in earnings
Year Ended December 31 ($ millions) |
2014 |
2013 |
Registered Plan |
|
|
Current service costs |
8 |
9 |
Interest on obligation |
6 |
5 |
Expected return on plan assets |
(5) |
(4) |
|
9 |
10 |
The expense is recognized in the following line items in the
statement of comprehensive income:
Year Ended December 31 ($ millions) |
2014 |
2013 |
Registered Plan |
|
|
|
Operating expenses |
5 |
5 |
|
General and administrative expense |
4 |
5 |
|
|
9 |
10 |
|
Expense recognized for the Supplemental Plan was less than $1
million for each of the years ended December 31, 2014 and 2013.
Actuarial gains and losses recognized in other comprehensive
income
|
2014 |
2013 |
($ millions) |
Registered
Plan |
Supplemental
Plan |
Total |
Registered
Plan |
Supplemental
Plan |
Total |
Balance at January 1 |
(7) |
(1) |
(8) |
(25) |
(1) |
(26) |
Remeasurements gain: |
|
|
|
|
|
|
Actuarial gain (loss) arising from |
|
|
|
|
|
|
Demographic assumptions |
|
|
|
(2) |
|
(2) |
Financial assumptions |
(15) |
|
(15) |
7 |
|
7 |
Experience adjustments |
(2) |
|
(2) |
4 |
|
4 |
Return on plan assets excluding interest income |
3 |
|
3 |
9 |
|
9 |
Recognized during the period after tax |
(14) |
|
(14) |
18 |
|
18 |
Balance at December 31 |
(21) |
(1) |
(22) |
(7) |
(1) |
(8) |
Principal actuarial assumptions used:
December 31 (weighted average percent) |
2014 |
2013 |
Discount rate |
4.0% |
4.9% |
Future pension earning increases |
4.0% |
4.0% |
Assumptions regarding future mortality are based on published
statistics and mortality tables. The current longevities underlying the values of the liabilities in the defined plans are as follows:
December 31 (years) |
2014 |
2013 |
Longevity at age 65 for current pensioners |
|
|
Males |
21.4 |
21.3 |
Females |
23.9 |
23.5 |
Longevity at age 65 for current member aged 45 |
|
|
Males |
22.6 |
22.4 |
Females |
24.9 |
24.2 |
The calculation of the defined benefit obligation is sensitive
to the discount rate, compensation increases, retirements and termination rates as set out above. An increase or decrease of the
estimated discount rate of 4.0 percent by 100 basis points at December 31, 2014 is considered reasonably possible in the next financial
year but would not have a material impact on the obligation.
Pembina
Pipeline Corporation
The Company expects to contribute $9 million to the defined benefit
plans in 2015.
At December 31, 2014, the Company has the following share-based
payment arrangements:
Share option plan (equity settled)
The Company has a share option plan under which employees are
eligible to receive options to purchase shares in the Company.
Long-term share unit award incentive (cash-settled) plan
In 2005, the Company established a long-term share unit award
incentive plan. Under the share-based compensation plan, awards of restricted (RSU) and performance (PSU) share units are made
to officers, non-officers and directors. The plan results in participants receiving cash compensation based on the value of the
underlying notional shares granted under the plan. Payments are based on a trading value of the Company's common shares plus notional
dividends and performance of the Company.
Terms and conditions of share option plan and share unit
award incentive plan
The terms and conditions relating to the grants of the share
option program and the long-term share unit award incentive plans are listed in the tables below:
Grant date share options granted to employees
(thousands of options, except as noted) |
Number of options |
Contractual life of
options |
January 2, 2013 |
61 |
7 years |
April 1, 2013 |
52 |
7 years |
August 9, 2013 |
1,605 |
7 years |
October 1, 2013 |
70 |
7 years |
January 2, 2014 |
101 |
7 years |
March 12, 2014 |
409 |
7 years |
April 1, 2014 |
91 |
7 years |
September 18, 2014 |
2,985 |
7 years |
November 20, 2014 |
3,110 |
7 years |
One-third vest on the first anniversary of the grant date, one-third
vest on the second anniversary of the grant date, and one-third vest on the third anniversary of the grant date.
Long-term share unit award incentive plan(1)
Grant date PSUs to Officers, Non-Officers(2) and Directors
(thousands of units, except as noted) |
Units |
Contractual life
of PSU |
January 1, 2013 |
292 |
3 years |
January 1, 2014 |
227 |
3 years |
PSUs vest on the third anniversary of the grant date. Actual
PSUs awarded based on the trading value of the shares and performance of the Company.
Pembina
Pipeline Corporation
Grant date RSUs to Officers, Non-Officers(2) and Directors
(thousands of units, except as noted) |
Units |
Contractual life of RSU |
January 1, 2013 |
285 |
3 years |
January 1, 2014 |
256 |
3 years |
One-third vest on the first anniversary of the grant date, one-third
vest on the second anniversary of the grant date, and one-third vest on the third anniversary of the grant date.
| (1) | Distribution Units are
granted in addition to RSU and PSU grants based on notional accrued dividends from RSU
and PSU granted but not paid. |
| (2) | Non-Officers defined as
senior selected positions within the Company. |
Disclosure of share option
plan
The number and weighted average
exercise prices of share options as follows:
(thousands of options, except as noted) |
Number of Options |
Weighted Average Exercise Price (dollars) |
Outstanding at December 31, 2012 |
3,532 |
$23.11 |
Granted |
1,787 |
$32.17 |
Exercised |
(887) |
$19.08 |
Forfeited |
(233) |
$26.14 |
Outstanding at December 31, 2013 |
4,199 |
$27.65 |
Granted |
6,696 |
$46.83 |
Exercised |
(792) |
$25.11 |
Forfeited |
(343) |
$39.23 |
Outstanding as at December 31, 2014 |
9,760 |
$40.60 |
As of December 31, 2014, the
following options are outstanding:
(thousands of options, except as noted)
Exercise Price (dollars) |
Number outstanding
at December 31, 2014 |
Options Exercisable |
Weighted average
remaining life |
$14.84 – $19.99 |
322 |
322 |
2.41 years |
$20.00 – $29.99 |
1,473 |
1,038 |
4.26 years |
$30.00 – $39.99 |
1,942 |
402 |
5.61 years |
$40.00 – $52.01 |
6,023 |
|
6.79 years |
|
9,760 |
1,762 |
|
The weighted average share price at the date of exercise for
share options exercised in the year ended December 31, 2014 was $45.32 (December 31, 2013:
$33.12).
Expected volatility is estimated by considering historic average
share price volatility. The weighted average inputs used in the measurement of the fair values at grant date of share options are
the following:
Share options granted
Year Ended December 31 (dollars, except as noted) |
2014 |
2013 |
Weighted average |
|
|
Fair value at grant date |
4.77 |
2.59 |
Share price at grant date |
47.32 |
31.60 |
Exercise price |
46.83 |
32.17 |
Expected volatility (percent) |
19.1 |
20.6 |
Expected option life (years) |
3.67 |
3.67 |
Expected annual dividends per option |
1.74 |
1.65 |
Expected forfeitures (percent) |
7.8 |
7.9 |
Risk-free interest rate (based on government bonds)(percent) |
1.3 |
1.4 |
Pembina
Pipeline Corporation
Disclosure of long-term share unit award incentive plan
The long-term share unit award incentive plan was valued using
the reporting date market price of the Company's shares of $39.47 (December 31, 2013: $37.42). Actual payment may differ from amount
valued based on market price and company performance.
Long-term share unit award incentive units granted
Year Ended December 31
(thousands of share units) |
2014 |
2013 |
Number of share units granted |
482 |
577 |
Employee expenses
Year Ended December 31
($ millions) |
2014 |
2013 |
Share option plan, equity settled |
6 |
3 |
Long-term share unit award incentive plan |
33 |
31 |
Share-based payment expense |
39 |
34 |
|
|
|
Total carrying amount of liabilities for cash settled arrangements |
52 |
48 |
Total intrinsic value of liability for vested benefits |
29 |
30 |
| 24. | FINANCIAL INSTRUMENTS AND FINANCIAL RISK MANAGEMENT |
Financial Risk Management
Pembina has exposure to counterparty credit risk, liquidity
risk and market risk. Pembina recognizes that effective management of these risks is a critical success factor in managing organization
and shareholder value.
Risk management strategies, policies and limits ensure risks
and exposures are aligned to Pembina's business strategy and risk tolerance. The Company's Board of Directors is responsible for
providing risk management oversight at Pembina. The Company's Audit Committee oversees how management monitors compliance with
the Company's risk management policies and procedures and reviews the adequacy of this risk framework in relation to the risks
faced by the Company. Internal audit personnel assist the Audit Committee in its oversight role by monitoring and evaluating the
effectiveness of the organization's risk management system.
Counterparty credit risk
Counterparty credit risk represents the financial loss the Company
would experience if a counterparty to a financial instrument failed to meet its contractual obligations in accordance with the
terms and conditions of the financial instruments with the Company. Counterparty credit risk arises primarily from the Company's
cash and cash equivalents, trade and other receivables, and from counterparties to its derivative financial instruments. The carrying
amount of the Company's cash and cash equivalents, trade and other receivables and derivative financial instruments represents
the maximum counterparty credit exposure, without taking into account security held.
The Company manages counterparty credit risk through established
credit management techniques, including conducting comprehensive financial and other assessments for all new counterparties and
regular reviews of existing counterparties to establish and monitor a counterparty's creditworthiness, setting exposure limits,
monitoring exposures against these limits and obtaining financial assurances where warranted. The Company utilizes various sources
of financial, credit and business information in assessing the creditworthiness of a counterparty including external credit ratings,
where available, and in other cases, detailed financial statement analysis in order to generate an internal credit rating based
on quantitative and qualitative factors. The establishment of counterparty exposure limits is governed by a Board of Directors
designated counterparty exposure limit matrix which represents the maximum dollar amounts of counterparty exposure by debt rating
that can be approved for a counterparty. The Company continues to closely monitor and reassess the creditworthiness of its counterparties,
which has resulted in the Company reducing or mitigating its exposure to certain counterparties where it was deemed warranted and
permitted under contractual terms.
Pembina
Pipeline Corporation
Financial assurances may include guarantees, letters of credit and
cash. Letters of credit are held on $41 million (December 31, 2013: $51 million) of the receivables balance.
Typically, the Company has collected its receivables in full
and at December 31, 2014, 85 percent were current (2013: 86 percent). The Company has a general lien and a continuing
and first priority security interest in, and a secured charge on, all of a shipper's petroleum in its custody. The risk of non-collection
is considered to be low and no impairment of trade and other receivables has been made.
The Company monitors and manages its concentration of counterparty
credit risk on an ongoing basis. The Company believes these measures minimize its counterparty credit risk but there is no certainty
that they will protect it against all material losses. As part of its ongoing operations, the Company must balance its market and
counterparty credit risks when making business decisions.
Liquidity risk
Liquidity risk is the risk the Company will not be able to meet
its financial obligations as they come due. The following are the contractual maturities of financial liabilities, including estimated
interest payments.
|
Outstanding balances due by period |
December 31, 2014
($ millions) |
Carrying
Amount |
Expected
Cash Flows |
Less Than
1 Year |
1 – 3 Years |
3 – 5 Years |
More Than
5 Years |
Trade payables and accrued liabilities |
550 |
550 |
550 |
|
|
|
Taxes payable |
58 |
58 |
58 |
|
|
|
Loans and borrowings |
2,470 |
3,951 |
94 |
189 |
964 |
2,704 |
Convertible debentures |
391 |
534 |
25 |
73 |
187 |
249 |
Dividends payable |
49 |
49 |
49 |
|
|
|
Derivative financial liabilities |
117 |
117 |
44 |
7 |
66 |
|
Operating and finance leases |
745 |
745 |
55 |
145 |
153 |
392 |
Construction commitments |
1,983 |
1,983 |
1,724 |
192 |
67 |
|
The Company manages its liquidity risk by forecasting cash flows
over a 12 month rolling time period to identify financing requirements. These financing requirements are then addressed through
a combination of credit facilities and through access to capital markets, if required.
Market risk
Pembina's results are subject to movements in commodity prices,
foreign exchange and interest rates. A formal Risk Management Program including policies and procedures has been designed to mitigate
these risks.
Pembina's Midstream business includes product storage, terminalling,
hub services, and cross-commodity and product quality trading activities. These activities expose Pembina to certain risks including
that Pembina may experience volatility in revenue due to fluctuations in commodity prices. Primarily, Pembina enters into contracts
to purchase and sell crude oil at floating market prices. The prices of products that are marketed by Pembina are subject to volatility
as a result of such factors as seasonal demand changes, extreme weather conditions, general economic conditions, changes in crude
oil markets and other factors. Pembina manages its risk exposure by balancing purchases and sales to lock-in margins. Notwithstanding
Pembina's management of price and quality risk, marketing margins for crude oil can vary and have varied significantly from period
to period. This variability could have an adverse effect on the results of Pembina's commercial Midstream business and its overall
results of operations. To assist in effectively smoothing that variability inherent in this business, Midstream is investing in
assets that have a fee-based revenue component, and is looking to expand this area going forward.
Pembina
Pipeline Corporation
The Midstream business is also exposed to possible price declines
between the time Pembina purchases NGL feedstock and sells NGL products, and to decreasing frac spreads. Frac spread is the difference
between the selling prices for NGL products and the cost of NGL sourced from natural gas and acquired at natural gas related prices.
Frac spreads can change significantly from period to period depending on the relationship between crude oil and natural gas prices
(the "frac spread ratio"), absolute commodity prices, and changes in the Canadian to U.S. dollar foreign exchange rate.
There is also a differential between NGL product prices and crude oil prices which can change margins realized for midstream products
separate from frac spread ratio changes. The amount of profit or loss made on the extraction portion of the NGL midstream business
will generally increase or decrease with frac spreads. This exposure could result in variability of cash flow generated by the
NGL midstream business, which could affect Pembina and the cash dividends of Pembina.
Pembina responds to commodity price risk by using an active
Risk Management Program to fix revenues on a minimum of 50 percent of the committed term natural gas supply costs. Pembina's Midstream
business is also exposed to variability in quality, time and location differentials. The Company utilizes financial derivative
instruments as part of its overall risk management strategy to assist in managing the exposure to commodity price risk as a result
of these activities. The Company does not trade financial instruments for speculative purposes.
Pembina's commodity-related cash flows are subject to currency
risk, primarily arising from the denomination of specific cash flows in U.S. dollars. Pembina responds to this risk using an active
Risk Management Program to exchange foreign currency for domestic currency at a fixed rate.
Pembina has floating interest rate debt which subjects the Company
to interest rate risk. Pembina responds to this risk under the active Risk Management Program to enter into financial derivative
contracts to fix interest rates.
At the reporting date, the interest rate profile of the Company's
interest-bearing financial instruments was:
|
Carrying Amounts of Financial Liability |
December 31 ($ millions) |
2014 |
2013 |
Fixed rate instruments |
(1,964) |
(1,625) |
Variable rate instruments |
(506) |
(46) |
|
(2,470) |
(1,671) |
Pembina
Pipeline Corporation
Cash flow sensitivity analysis for variable rate instruments
A change of 100 basis points in interest rates at the reporting
date would have (increased) decreased earnings by the amounts shown below. This analysis assumes that all other variables remain
constant.
December 31 ($ millions) |
2014 |
2013 |
|
± 100 bp |
± 100 bp |
Variable rate instruments |
+ 5 |
± 1 |
Interest rate swap |
+ 1 |
|
Earnings sensitivity (net) |
+ 6 |
± 1 |
Fair values
The fair values of financial assets and liabilities, together
with the carrying amounts shown in the statement of financial position, are as follows:
December 31 |
2014 |
2013 |
($ millions) |
Carrying
Amount |
Fair
Value |
Carrying
Amount |
Fair
Value |
Financial assets carried at fair value |
|
|
|
|
Derivative financial instruments |
52 |
52 |
4 |
4 |
|
|
|
|
|
Financial assets carried at amortized cost |
|
|
|
|
Cash and cash equivalents |
53 |
53 |
51 |
51 |
Trade and other receivables |
447 |
447 |
434 |
434 |
|
500 |
500 |
485 |
485 |
|
|
|
|
|
Financial liabilities carried at fair value |
|
|
|
|
Derivative financial instruments |
117 |
117 |
120 |
120 |
|
|
|
|
|
Financial liabilities carried at amortized cost |
|
|
|
|
Trade payables and accrued liabilities |
550 |
550 |
461 |
461 |
Taxes payable |
58 |
58 |
38 |
38 |
Dividends payable |
49 |
49 |
44 |
44 |
Loans and borrowings |
2,470 |
2,590 |
1,671 |
1,764 |
Convertible debentures |
391(1) |
592 |
604(1) |
859 |
|
3,518 |
3,839 |
2,818 |
3,166 |
| (1) | Carrying
amount excludes conversion feature of convertible debentures. |
| (2) | The
fair value of convertible debentures at December 31, 2013 was $859 million and not $633
million as previously disclosed. |
The basis for determining fair values is disclosed in Note 5.
Interest rates used for determining fair value
The interest rates used to discount estimated cash flows, when
applicable, are based on the government yield curve at the reporting date plus and adequate credit spread, and were as follows:
December 31 (percents) |
2014 |
2013 |
Derivatives |
1.3% - 2.1% |
1.2% - 2.4% |
Loans and borrowings |
2.7% - 4.8% |
1.7% - 5.0% |
Fair value of power derivatives are based on market rates reflecting
forward curves.
Pembina
Pipeline Corporation
Fair value hierarchy
The fair value of financial instruments carried at fair value
is classified according to the following hierarchy based on the amount of observable inputs used to value the instruments.
Level 1: Unadjusted quoted prices are available in active markets
for identical assets or liabilities as the reporting date. Pembina does not use Level 1 inputs for any of its fair value measurements.
Level 2: Inputs other than quoted prices included within Level
1 that are observable for the asset or liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices). Level
2 valuations are based on inputs, including quoted forward prices for commodities, time value and volatility factors, which can
be substantially observed or corroborated in the marketplace. Instruments in this category include non-exchange traded derivatives
such as over-the-counter physical forwards and options, including those that have prices similar to quoted market prices. Pembina
obtains quoted market prices for its inputs from information sources including banks, Bloomberg Terminals and Natural Gas Exchange.
All of Pembina's significant financial instruments carried at fair value are valued using Level 2 inputs.
The following table is a summary
of the net derivative financial instrument liability:
|
2014 |
2013 |
December 31 ($ millions) |
Current
Asset |
Non-
Current
Asset |
Current
Liability |
Non-
Current
Liability |
Total |
Current
Asset |
Non-
Current
Asset |
Current
Liability |
Non-
Current
Liability |
Total |
Net derivative financial instruments
liability |
51 |
1 |
(40) |
(2) |
10 |
4 |
|
(6) |
(3) |
(5) |
Interest rate |
|
|
(2) |
(6) |
(8) |
|
|
(3) |
(5) |
(8) |
Foreign exchange |
|
|
(2) |
|
(2) |
|
|
(1) |
|
(1) |
Conversion feature of convertible debentures (Note 14) |
|
|
|
(65) |
(65) |
|
|
|
(99) |
(99) |
Redemption liability related to acquisition of subsidiary |
|
|
|
|
|
|
|
(3) |
|
(3) |
Net derivative financial instruments (liability) |
51 |
1 |
(44) |
(73) |
(65) |
4 |
|
(13) |
(107) |
(116) |
Sensitivity analysis
The following table shows the impact on earnings if the underlying
risk variables of the derivative financial instruments changed by a specified amount, with other variables held constant.
December 31, 2014 ($ millions) |
|
+ Change |
- Change |
Frac spread related |
|
|
|
Natural gas |
(AECO +/- $0.25 per GJ) |
1 |
(1) |
NGL (includes propane, butane and condensate) |
(Belvieu +/- U.S. $0.10 per gal) |
(3) |
3 |
Foreign exchange (U.S.$ vs. Cdn$) |
(FX rate +/- $0.05) |
(2) |
2 |
Product margin |
|
|
|
Crude oil |
(WTI +/- $2.50 per bbl) |
(4) |
4 |
NGL (includes condensate) |
(Belvieu +/- U.S. $0.10 per gal) |
6 |
(6) |
Corporate |
|
|
|
Interest rate |
(Rate +/- 50 basis points) |
2 |
(2) |
Power |
(AESO +/- $5.00 per MW/h) |
3 |
(3) |
Conversion feature of convertible debentures |
(Pembina share price +/- $0.50 per common share) |
(2) |
2 |
Pembina
Pipeline Corporation
Leases as lessee
Operating lease rentals are payable as follows:
December 31 ($ millions) |
2014 |
2013 |
Less than 1 year |
50 |
26 |
Between 1 and 5 years |
291 |
206 |
More than 5 years |
392 |
306 |
|
733 |
538 |
The Company leases a number of offices, warehouses, vehicles
and rail cars under operating leases. The leases run for a period of one to fifteen years, with an option to renew the lease after
that date. The Company has sublet office space up to 2022 and has contracted sub-lease payments, shown net in the table above, of $56 million over the term.
The Company's objective when managing capital is to safeguard
the Company's ability to provide a stable stream of dividends to shareholders that is sustainable over the long-term. The Company
manages its capital structure and makes adjustments to it in light of changes in economic conditions and risk characteristics of
its underlying asset base and based on requirements arising from significant capital development activities. Pembina manages and
monitors its capital structure and short-term financing requirements using Non-GAAP measures; the ratios of debt to EBITDA, debt
to total enterprise value, adjusted cash flow to debt and debt to equity. The metrics are used to measure the Company's overall
debt position and measure the strength of the Company's balance sheet. The Company remains satisfied that the leverage currently
employed in the Company's capital structure is sufficient and appropriate given the characteristics and operations of the underlying
asset base. The Company, upon approval from its Board of Directors, will balance its overall capital structure through new equity
or debt issuances, as required.
The Company maintains a conservative capital structure that
allows it to finance its day-to-day cash requirements through its operations, without requiring external sources of capital. The
Company funds its operating commitments, short-term capital spending as well as its dividends to shareholders through this cash
flow, while new borrowing and equity issuances are primarily reserved for the support of specific significant development activities.
The capital structure of the Company consists of shareholder's equity plus long-term liabilities. Long-term debt is comprised of
bank credit facilities, unsecured notes, finance lease obligations and convertible debentures.
Pembina is subject to certain financial covenants in its credit
facility agreements and is in compliance with all financial covenants as of December 31, 2014.
Note 16 of these financial statements shows the change in Share
Capital for the year ended December 31, 2014.
Pembina
Pipeline Corporation
Significant subsidiaries
|
Ownership Interest |
December 31 (percentages) |
2014 |
2013 |
Pembina Pipeline |
100 |
100 |
Pembina Gas Services Limited Partnership |
100 |
100 |
Pembina Oil Sands Pipeline LP |
100 |
100 |
Pembina Midstream Limited Partnership |
100 |
100 |
Pembina NGL Corporation |
100 |
100 |
Pembina Facilities NGL LP |
100 |
100 |
Pembina Midstream Inc. |
100 |
100 |
Pembina Infrastructure and Logistics LP |
100 |
100 |
Pembina Empress NGL Partnership |
100 |
100 |
Pembina Resource Services Canada |
100 |
100 |
Pembina Resource Services (U.S.A.) |
100 |
100 |
Pembina Prairie Facilities Ltd.(1) |
100 |
|
| (1) | Incorporated
upon the acquisition of Vantage. |
All transactions with related parties were made on terms equivalent
to those that prevail in arm's length transactions.
Key management personnel and director compensation
Key management consists of the Company's directors and certain
key officers.
Compensation
In addition to short-term employee benefits – including
salaries, director fees and bonuses – the Company also provides key management personnel with share-based compensation, contributes
to post employment pension plans and provides car allowances, parking and business club memberships.
Key management personnel compensation comprised:
Year Ended December 31 ($ millions) |
2014 |
2013 |
Short-term employee benefits |
5 |
4 |
Share-based compensation and other |
8 |
7 |
Total compensation of key management |
13 |
11 |
Transactions
Key management personnel and directors of the Company control
less than one percent of the voting common shares of the Company (consistent with the prior year). Certain directors and key management
personnel also hold Pembina convertible debentures and preferred shares. Dividend and interest payments received for the common
shares and debentures held are commensurate with other non-related holders of those instruments.
Certain officers are subject to employment agreements in the
event of termination without just cause or change of control.
Post-employment benefit plans
Pembina has significant influence over the pension plans for
the benefit of their respective employees.
Pembina
Pipeline Corporation
Transactions
($ millions) |
|
Transaction Value
Year Ended December 31 |
Balance Outstanding
As At December 31 |
Post-employment
benefit plan |
Transaction |
2014 |
2013 |
2014 |
2013 |
Defined benefit plan |
Funding |
10 |
13 |
|
|
Subsequent to the year-end,
on February 2, 2015, Pembina closed an offering of $600 million of senior unsecured medium-term notes (the "Offering").
The Offering was conducted in two tranches consisting of $450 million in senior unsecured medium-term notes, series 5 having a
fixed coupon of 3.54 percent per annum, paid semi-annually, and maturing on February 3, 2025, and $150 million through the re-opening
of its 4.75 percent medium-term notes, series 3, due April 30, 2043. Net proceeds were used to reduce short-term indebtedness of
the Company under its credit facilities, and will also be used to fund Pembina's capital program and for other general corporate
purposes.
Subsequent to the Vantage Acquisition and year end, on February
10, 2015, the Company announced that it has entered into agreements to expand the Vantage pipeline system (the "Vantage Expansion")
for an estimated capital cost of $85 million.
The Vantage Expansion entails increasing the Vantage Pipeline's
mainline capacity from 40 mbpd to 68 mbpd through the addition of mainline pump stations and the construction of
a new 80 km, 8-inch gathering lateral. The Vantage Expansion is supported by a long-term, fee-for-service agreement, with a substantial
take-or-pay component, and the gathering lateral is underpinned by a fixed return on invested capital agreement. Subject to
regulatory and environmental approvals, the Vantage Expansion is expected to be in-service in early-2016.
Pembina
Pipeline Corporation
PAGE
INTENTIONALLY LEFT BLANK
CORPORATE
INFORMATION
HEAD OFFICE
Pembina Pipeline Corporation
Suite 4000, 585 – 8th Avenue SW
Calgary, Alberta T2P 1G1
AUDITORS
KPMG LLP
Chartered Accountants
Calgary, Alberta
TRUSTEE, REGISTRAR & TRANSFER AGENT
Computershare Trust Company of Canada
Suite 600, 530 – 8th Avenue SW
Calgary, Alberta T2P 3S8
1-800-564-6253
STOCK EXCHANGE
Pembina Pipeline Corporation
Toronto Stock Exchange listing symbols for:
Common shares: PPL
Convertible debentures: PPL.DB.C, PPL.DB.E, PPL.DB.F
Preferred shares: PPL.PR.A, PPL.PR.C, PPL.PR.E, PPL.PR.G
New York Stock Exchange listing symbol for:
Common shares: PBA
INVESTOR INQUIRIES
Phone: |
(403) 231-3156 |
Fax: |
(403) 237-0254 |
Toll Free: |
1-855-880-7404 |
Email: |
investor-relations@pembina.com |
Website: |
www.pembina.com |
Exhibit 99.4
CERTIFICATION
REQUIRED BY RULE 13a-14(a) OR RULE 15d-14(a) UNDER THE
SECURITIES EXCHANGE ACT OF 1934, AS ADOPTED PURSUANT
TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, M.H.
Dilger, certify that:
| 1. | I
have reviewed this annual report on Form 40-F of Pembina Pipeline Corporation; |
| 2. | Based
on my knowledge, this report does not contain any untrue statement of a material fact
or omit to state a material fact necessary to make the statements made, in light of the
circumstances under which such statements were made, not misleading with respect to the
period covered by this report; |
| 3. | Based
on my knowledge, the financial statements, and other financial information included in
this report, fairly present in all material respects the financial condition, results
of operations and cash flows of the issuer as of, and for, the periods presented in this
report; |
| 4. | The
issuer’s other certifying officer and I are responsible for establishing and maintaining
disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e))
and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f)
and 15d-15(f)) for the issuer and have: |
| (a) | Designed
such disclosure controls and procedures, or caused such disclosure controls and procedures
to be designed under our supervision, to ensure that material information relating to
the issuer, including its consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this report is being prepared; |
| (b) | Designed
such internal control over financial reporting, or caused such internal control over
financial reporting to be designed under our supervision, to provide reasonable assurance
regarding the reliability of financial reporting and the preparation of financial statements
for external purposes in accordance with generally accepted accounting principles; |
| (c) | Evaluated
the effectiveness of the issuer’s disclosure controls and procedures and presented
in this report our conclusions about the effectiveness of the disclosure controls and
procedures, as of the end of the period covered by this report based on such evaluation;
and |
| (d) | Disclosed
in this report any change in the issuer’s internal control over financial reporting
that occurred during the period covered by the annual report that has materially affected,
or is reasonably likely to materially affect, the issuer’s internal control over
financial reporting; and |
| 5. | The
issuer’s other certifying officer and I have disclosed, based on our most recent
evaluation of internal control over financial reporting, to the issuer’s auditors
and the audit committee of the issuer’s board of directors (or persons performing
the equivalent function): |
| (a) | All
significant deficiencies and material weaknesses in the design or operation of internal
control over financial reporting which are reasonably likely to adversely affect the
issuer’s ability to record, process, summarize and report financial information;
and |
| (b) | Any
fraud, whether or not material, that involves management or other employees who have
a significant role in the issuer’s internal control over financial reporting. |
Date: February
26, 2015 |
|
|
|
|
/s/ M.H. Dilger |
|
Name: |
M.H.
Dilger |
|
Title: |
President & Chief Executive
Officer |
Exhibit 99.5
CERTIFICATION REQUIRED BY RULE 13a-14(a) OR
RULE 15d-14(a) UNDER THE
SECURITIES EXCHANGE ACT OF 1934, AS ADOPTED PURSUANT
TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, J. Scott Burrows, certify that:
| 1. | I have reviewed this annual report on Form 40-F of Pembina Pipeline Corporation; |
| 2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with
respect to the period covered by this report; |
| 3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in
all material respects the financial condition, results of operations and cash flows of the issuer as of, and for, the periods presented
in this report; |
| 4. | The issuer’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined
in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the issuer and have: |
| (a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our
supervision, to ensure that material information relating to the issuer, including its consolidated subsidiaries, is made known
to us by others within those entities, particularly during the period in which this report is being prepared; |
| (b) | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed
under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with generally accepted accounting principles; |
| (c) | Evaluated the effectiveness of the issuer’s disclosure controls and procedures and presented in this report our conclusions
about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on
such evaluation; and |
| (d) | Disclosed in this report any change in the issuer’s internal control over financial reporting that occurred during the
period covered by the annual report that has materially affected, or is reasonably likely to materially affect, the issuer’s
internal control over financial reporting; and |
| 5. | The issuer’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over
financial reporting, to the issuer’s auditors and the audit committee of the issuer’s board of directors (or persons
performing the equivalent function): |
| (a) | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting
which are reasonably likely to adversely affect the issuer’s ability to record, process, summarize and report financial information;
and |
| (b) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the issuer’s
internal control over financial reporting. |
Date: February 26, 2015 |
|
|
|
|
/s/ J. Scott Burrows |
|
Name: |
J. Scott Burrows |
|
Title: |
Vice President,
Finance and Chief Financial Officer |
Exhibit
99.6
CERTIFICATION
PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT
TO SECTION 906
OF THE SARBANES-OXLEY
ACT OF 2002
In connection with
the Annual Report of Pembina Pipeline Corporation (the “Company”) on Form 40-F for the year ended December 31, 2014,
as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, M.H.
Dilger, President & Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to the best of my knowledge:
| 1. | The
Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities
Exchange Act of 1934; and |
| 2. | The
information contained in the Report fairly represents, in all material respects, the
financial condition and results of the operations of the Company. |
Date: February
26, 2015
|
/s/ M.H. Dilger |
|
M.H. Dilger
|
|
President & Chief Executive Officer |
Exhibit
99.7
CERTIFICATION
PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT
TO SECTION 906
OF THE SARBANES-OXLEY
ACT OF 2002
In connection with
the Annual Report of Pembina Pipeline Corporation (the “Company”) on Form 40-F for the year ended December 31, 2014,
as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, J. Scott Burrows, Vice
President, Finance and Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant
to Section 906 of the Sarbanes-Oxley Act of 2002, that to the best of my knowledge:
| 1. | The
Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities
Exchange Act of 1934; and |
| 2. | The
information contained in the Report fairly represents, in all material respects, the
financial condition and results of the operations of the Company. |
Date: February
26, 2015
|
/s/ J. Scott Burrows |
|
J. Scott Burrows |
|
Vice President, Finance and Chief Financial Officer |
Exhibit 99.8
|
|
|
|
kpmg
LLP |
Telephone(403)
691-8000 |
|
205 - 5th
Avenue SW |
Fax(403) 691-8008 |
|
Suite 3100, Bow Valley
Square 2 |
www.kpmg.ca |
|
Calgary AB |
|
|
T2P 4B9 |
|
Consent of Independent Registered Public
Accounting Firm
The Board of Directors
Pembina Pipeline Corporation
We consent to the use of our reports, each dated February 26,
2015, with respect to the consolidated financial statements and the effectiveness of internal control over financial reporting
included in this annual report on Form 40-F.
We also consent to the incorporation by reference of such reports
in the Registration Statements (No. 333-187938) on Form F-3 of Pembina Pipeline Corporation.
Chartered Accountants
February 26, 2015
Calgary, Canada
KPMG LLP is a Canadian
limited liability partnership and a member firm of the KPMG
network of independent
member firms affiliated with KPMG International Cooperative
(“KPMG International”),
a Swiss entity. KPMG Canada provides services to KPMG LLP.
KPMG Confidential
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